What Exactly is an Annuity?

June 25, 2017 – Wealth Strategy with Bryan Rigg, Your Wealth Professor
Listen In Every Week: Saturday on WRR from 7:00-8:00 am / Sundays on 570 KLIF

what is an annuity?We’re going to discuss annuities. What exactly are they? Should you or should you not participate in an annuity program?

Also, the definitions and the differences in IRAs and 401Ks. We bounce those numbers around and those items. We consider them in our portfolio, but what are they? What are the differences? We also want to take a segment to clear up confusion about Social Security. There are Social Security benefits, and there’s Social Security income.

We’re going to address some broader elements in Social Security. Finally, our last segment’s going to be about TRS. School’s out now. Summer’s in session. Teachers, some are retiring, and some are starting.

Some are continuing their career path as a teacher in our public school system as well as some administrators. What are pension plans for TRS? Is it always going to be enough? We’ll talk about that to close the day.

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DISCLOSURE:

RIGG Wealth Management offers securities to Broker Dealer Financial Services, Member SIPC and advisory services through Investment Advisors Corp and SCC registered investment advisor. RIGG Wealth Management is not a subsidy area of Broker Dealer Financial Services. Neither RIGG Wealth Management nor Broker Dealer Financial Services offer legal advice. Client should consult their attorney of choice on all legal matters.

Opinions expressed on this program do not necessarily reflect those of Broker Dealer Financial Services. The topics discussed and opinions given are not intended to address the specific needs of any listener. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Examples mentioned are for illustrative purposes only, individual results may vary. Past performance is no guarantee of future results. Investing involves risk including loss of principle. Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.

SHOW TRANSCRIPT

SEGMENT 2

Rob Dalton:  Welcome to the show. I am Rob Dalton. I’ve got a couple special guests today. Bryan, our wealth professor, isn’t with us today, but I do have two people that work daily with Rigg Wealth Management. Give me your names. Who are you, sir?

Gary Bilyeu:  I’m Gary Bilyeu.

Rob:  And?

David Rigg:  David Rigg.

Rob:  David Rigg. Gary and David are going to be with us today. They’re here for the full hour. We’re going to talk about different topics and discussions. We’re going to keep things light, lively, and general, but we’re here to educate you about financial planning, about making things easy and understandable.

We’ll use digestible terms and things you can follow along without getting too lofty and too heady into the financial realm. Gary, tell me a little bit about yourself.

Gary:  I got my start in the insurance field in 2001/2002 and work very closely with Bryan. There are mutual needs. Some of his clients had insurance needs, and my insurance clients had financial needs.

Starting in 2005 we started working very closely together. [laughs] From that time Bryan was putting the pressure on me to come over to the dark side, to his side of it.

Rob:  [laughs]

Gary:  I always wanted to do that. When you start your career and build a business, it’s hard to transition sometimes. Eventually I did make the transition. Now, I still do a lot of insurance, but the everyday gig, if you will, is financial advising.

Rob:  Good. Over on the other microphone is…you happen to be Bryan’s brother.

David:  That is correct.

Rob:  What a coincidence.

David:  [laughs]

Rob:  The same last name and related.

David:  Exactly, exactly.

Rob:  Give us a little background on yourself.

David:  Came out of the Marine Corps. Most of my background is in commercial aviation. I still do that a little bit. I got interested in financial planning a couple decades ago and slowly started working through it, got licensed a few years ago, and then came on board with Bryan.

Rob:  Very nice. I want to talk to you, the audience. I want to give you first of all acknowledgment for being here. You’ve taken us on your radio along for the ride today whether you’re at home or in the car or even on the podcast. Maybe you’re jogging, but you’re making us part of your day. We appreciate you incorporating us into your activities. We really do.

We hope you stick around for the full hour, but if you can’t, well, just tell us goodbye and come back and visit us next week at the same time. For now, we’re going to talk about what we’re going to talk about today. I’ve got again, Gary and David. We’re going to discuss annuities. What exactly are they? Should you or should you not participate in an annuity program?

Also, the definitions and the differences in IRAs and 401Ks. We bounce those numbers around and those items. We consider them in our portfolio, but what are they? What are the differences? We also want to take a segment to clear up confusion about Social Security. There are Social Security benefits, and there’s Social Security income.

We’re going to address some broader elements in Social Security. Finally, our last segment’s going to be about TRS. School’s out now. Summer’s in session. Teachers, some are retiring, and some are starting.

Some are continuing their career path as a teacher in our public‑school system as well as some administrators. What are pension plans for TRS? Is it always going to be enough? We’ll talk about that to close the day. First let me start. Dave, our topic is annuities. What exactly is an annuity?

David:  An annuity is basically a contract between an individual and an insurance company. It can be a couple main different types, either a variable or a fixed. The fixed annuity, a lot of times you’ll pay whatever amount you’re going to pay to the insurance company. They will pay you a certain percentage. That’s the guarantee of the fixed annuity.

The variable is an attempt with an annuity to stay ahead of inflation and be somewhat adjustable. That’s the attempt with the variable annuity.

Rob:  OK, good. Gary, let me ask you. How liquid are annuities in a portfolio?

Gary:  They are liquid, but that’s not the real question. The real question is what’s the expense associated with getting my money out?

Rob:  Great. Let’s go there.

Gary:  All right. I deal with a lot of teachers and have since 2001/2002. Most of them do purchase annuities. What I had to do is break it down to two simple questions. What is an annuity? Should you buy one?

Rob:  Let’s start with there.

Gary:  All right. Dave mentioned…

Rob:  Dave got that one. [laughs]

Gary:  Dave mentioned about an annuity is, but I don’t think that you should look at an annuity as the one product that’s going to solve all your problems. It’s not. There is no one investment that’s going to solve all your problems. It can be a very powerful financial tool but when it’s used for the right purpose and in the right situation.

They can add stability and security to an investor’s portfolio when they’re used in an efficient manner. I know Bryan talks about efficiency. When we mention efficiency, we’re talking about taxes, fees ‑‑ just the overall cost of doing business. Generally speaking, that is what we don’t necessarily like about annuities.

Generally speaking, if you had to list a few different investment types, and we’re talking about efficiency, in our opinion they’re the least efficient because they’re usually the highest in fees. Advisor’s fees cost to the investor, followed my mutual funds, followed by ETF, Exchange Traded Funds.

Unfortunately, the vast majority of the annuity buyers misallocate their resources when purchasing these annuities. It ends up being an under‑performing annuity that costs too much, and it pays them too little. It’s simply inefficient use of their resources.

Now Dave mentioned it. It’s a contract between you and a third party, usually an insurance company, and there are some guarantees. Those are based on the financial strength of the insurance company.

Yes, they can be good, but it’s not a one‑stop shop for everyone. That’s what we do differently. We’re getting in “Should you buy one?” That depends on what you’re trying to solve. Every investment should be designed to solve a problem that you have.

We need to sit down and visit with you to see. If an annuity is the right fit for you, then we have no problem helping you get an annuity. If it’s not, then we’ll leave it off the table.

David:  We’ll take it off the table.

Gary:  Absolutely.

David:  A lot of people like annuities because they think it’s a guaranteed “OK, we’ll give you x amount of dollars, and you’ll make five percent on that.” That is guaranteed as long as that insurance company is still around.

There’s risk just like Gary and I were talking earlier on the way over. There’s risk in everything that we do. Just because you have an annuity, that doesn’t necessarily mean that’s going to be guaranteed forever.

Rob:  One of the questions I was going to ask is it sounds like annuities are rather safe. Bryan and I often talk about safety and what people are comfortable within their risk tolerance, but annuities seem safe?

Gary:  There’s two types. Dave mentioned them. There’s a fixed annuity and a variable annuity. A fixed annuity is safe. For the conservative investor, people that don’t want their money at risk, they go for the fixed product. If you’re more aggressive and you can stomach the risk, if you will, then a variable annuity may solve your problems.

The point is we don’t lead with annuities. We’re not selling you a product. We’re financial advisors. We need to advise you to the appropriate investment that solves your problem. We don’t know that until we sit down and visit with you.

Rob:  Again, one of the things we talk about is risk tolerance. Let me ask you. One of the things we discuss from time to time is FDIC. Are annuities FDIC‑insured?

David:  No, they’re not. When we talk about risk and people feeling safe having an annuity at five percent, for example, that’s great unless interest rates go back to 1980 levels…

Rob:  Oh, yeah. [laughs]

David:  …when you have 12 or 13 percent. The risk you run even with an annuity, you think it’s safe, but you do have purchasing‑power risk over the life of that annuity.

Gary:  Let me make just a small distinction here, but it’s very important…

Rob:  Go ahead, Gary.

Gary:  …when you said guarantee. When we’re talking investment products, which we’re licensed to handle, there are no guarantees. We can’t use it. That is the forbidden G word. Now a fixed annuity is an insurance product. It is not treated as an investment, so you often hear them use the G‑word, guarantee. That’s a small distinction but very important in our industry.

Rob:  I can see why it would be. What about you? When you look at a diversified portfolio, is it something you might just toss in for safety or just as an investment? Do you really try and stay away from some degree?

David:  I don’t particularly like them.

Rob:  In general, not with specifics.

David:  In general. In general. For some people, they are perfect. They are very suitable for certain individuals. Gary and I were talking earlier. There’s other ways to have conservative or lower risk investments in a portfolio. We were talking like municipal bonds. You can diversify those through municipalities, school districts.

The school bonds here in the state of Texas are backed up by the mineral rights in the state of Texas. Pretty safe. Pretty safe.

Rob:  That would be. That would be.

Gary:  Let me just dovetail on that real quick.

Rob:  Please do.

Gary:  You mentioned safe, but the reason why you purchase an annuity is primarily for a stream of income, whether a lump sum or a certain period of time for your life. If you’re looking for a stream of income, then annuities may be exactly what you’re looking for. We don’t know that until we understand what you’re trying to accomplish.

Rob:  That may come with a complimentary consultation, which you guys offer at Rigg Wealth Management.

Gary:  Absolutely. Like I said a few minutes ago, we are not selling products. We are providing financial advice.

Rob:  Consultants.

Gary:  We’re consultants, so we can’t give you a recommendation. In fact, I don’t give recommendations specifically where you’re going to invest until we’ve had a couple of short meetings. Let’s have a couple of short meetings versus one marathon meeting. We need to sit down to understand what you’re trying to accomplish.

Rob:  Which you can do with a phone call. What’s the phone number?

David:  972‑383‑1210.

Rob:  We’ll be right back.

SEGMENT 2

Rob Dalton:  Ladies and gentlemen, welcome back from the break. It’s nice to have you with us again. I am Rob Dalton. This is the Wealth Strategy with Bryan Rigg Show, but Bryan is on vacation. Instead, we’ve got a couple of people that work with him directly. Joining me, of course, is his brother, David Rigg.

David Rigg:  Thanks for having me, Rob.

Rob:  Yes. We also have someone that works with him daily as well, Gary Bilyeu.

Gary Bilyeu:  Thanks for having me.

Rob:  We are going to talk, this segment, about IRAs. A lot of us hear the word IRA or the three letters anyway, but there are differences. We are going to spend the next segment talking about a General IRA, a Roth IRA and a 401k, all similar in saving for the future.

Let’s talk about definitions and differences. Gary, help me out here. Can you help me define the differences between those three?

Gary:  Rob, you mentioned a General IRA. There really are several IRAs, but I think what we’re talking about is a Traditional, the difference between a Traditional IRA individual retirement account, a Roth IRA individual retirement account, and a 401k.

The IRS sets all the rules and regulations on each one of these and their defined contribution. They tell you how much you can put in each year, based on your income and many other factors. The one that we really focus on is the Roth. I’ll tell you why.

Traditional IRAs allow you to put the same amount. Roth and Traditional IRA contribution amounts are the same. The difference is, with a Traditional IRA, you can deduct those contributions, in most cases, on your income tax. Not with a Roth. These are after‑tax dollars. A Traditional is pre‑tax dollars. You’re putting it all in there, essentially pre‑tax deferred.

The Roth IRA is after‑tax dollars. When you put that money in there, it grows tax‑free versus tax‑deferred. The IRS is going to get their taxes either on the front‑end or the back‑end. With a Roth IRA, they’re getting their money on the front‑end. All your growth is tax‑free.

That can be huge, over time. One of the benefits that we like about the Roth is that you can give that as an inheritance to a beneficiary and it can continue to grow. You do not have to have the required minimum distribution, or MD, with a Roth. That means that, at age 70 and a half you do not have to start taking out your money.

It can continue to grow. With a Traditional at age 70 and a half, you must take out that required amount, that required distribution. If you don’t, you can be penalized for that. Just in very simple terms, a Traditional IRA can work for you until age 70 and a half and then you have to start withdrawing that money. With a Roth, you don’t have to.

Rob:  You don’t have to. That’s why you can will it. You can pass it on.

Gary:  Yes. You have beneficiaries with both. But the biggest benefit is that money can stay in there. You do not have to withdraw it. We’re talking about a Roth. It can stay in there past 70 and a half and continue to work for you. That is huge.

Rob:  Because that was built with after‑tax money.

Gary:  It is. It is.

Rob:  A General IRA is tax deferred.

Gary:  It is. They both have some commonalities. One of them is, if you start taking money out of there prior to age 59 and a half, there is an additional penalty. It’s all going to be taxed as earned income. But, if you are less than 59 and a half and take that money out, there is an additional 10 percent penalty.

Rob:  That makes sense. David Rigg, help me out here. 401k. We’ve talked about the IRAs. How is a 401k different or similar, for that matter?

David:  It is a defined contribution.

Rob:  It is. OK.

David:  It’s set up by most employers. A lot of large employers have it and you’ll have a company match. If you put in a certain amount, they’ll match that amount.

Rob:  They’ll match it.

David:  It’s a very good vehicle. The thing I really like about it is it provides discipline. If you sign up for it and you’re meeting the match, you’re getting the company match and it’s coming out of your paycheck. You are contributing.

It’s good for a lot of people that may have issues writing a check for an investment, putting something aside for savings or anything like that. It allows people to do it, after the initial sign‑up, automatically.

Gary:  Just to answer your initial question, the IRA it’s individual retirement account, whereas a 401k is an employer‑sponsored plan.

David:  Sponsored plan.

Rob:  That’s a nice footnote there. I like that.

David:  Absolutely.

Rob:  A 401k with an employer contribution helps with the discipline angle.

David:  Absolutely.

Rob:  You never really see it, except it’s on your pay stub. It’s being taken care of for you.

Gary:  One of the advantages of the 401k is that most employers match a percentage of what you’re putting in there.

Rob:  It’s the free money element, to a degree.

Gary:  It is. It’s money that you’re not doing anything for that your employer is contributing.

David:  Right. Once that money’s in the 401k, it’s immediately at risk, like any other money that you have invested.

Rob:  Because it is an investment.

David:  Absolutely. One thing about most 401ks, I won’t say all 401ks, is you have more flexibility inside an IRA to what you can invest with. Most 401ks are very conservative with the options that they have available to their people. They realize a lot of those people are not paying attention to their investments.

Rob:  Right. They’re not professionals.

David:  So, they don’t know. Yes. Exactly.

Gary:  That goes back to the defined contribution that you mentioned. Now you, as the individual, are responsible for all the investment decisions. In a defined benefit or pension plan, that administrator of the pension handles all the investments.

Rob:  Yeah, right. You have no input.

Gary:  Now all the responsibility is on you, as the individual.

Rob:  Right. You can go in and play with it and manipulate it based on whatever you’re feeling, but even that’s a little scary sometimes.

Gary:  Yeah, and you can only manipulate those choices that are offered to you. What Dave was mentioning is, on the individual side, we can go out there to the full spectrum. We can put anything you want inside that.

Rob:  You can at Rigg Wealth Management.

Gary:  We can at Rigg Wealth Management.

David:  One of the things that they won’t let us do in an IRA is collectibles. I can’t collect wooden duck decoys that I think are going to be worth something someday.

Rob:  Darn it.

Gary:  And Muni bonds. We can’t put Muni bonds in there or anything that’s tax‑free.

David:  Anything that’s tax‑free. They limit your option plays. You’re allowed to do covered calls, which is probably a little bit past the spectrum of this show right now. But they limit your option flexibility with that. They don’t allow short sales and things like that. But, in general, it’s much more flexible than a 401k.

Gary:  It’s encouraging you to put away for your retirement, not to gamble with it.

Rob:  Yes, I see what you’re saying. I see the difference. Going back to the IRA element, there are maxes on what you can contribute. If I max out my annual limit, what else can I do Gary?

Gary:  Another question I usually get is, “I have a 401k. Can I do an IRA?” The simple answer is yes.

Rob:  Yes, you can.

Gary:  Really, where you run into any type of limitations is the individual retirement accounts are based on your income. Once you reach a certain threshold, you start reducing your max. Right now, the maximum for 2017 is $5,500 per individual.

I could put that into a Roth IRA if I wanted to, but if my income exceeds a certain amount, that 5,500 starts being reduced, until it’s reduced to zero. It’s very important to understand. If we ask you, “How much did you make?”, we need to know that.

Rob:  There’s a reason you’re asking.

Gary:  The reason is, if we put too much in there and we’re not allowed to put the maximum amount, and we go ahead and put the maximum amount, the IRS will penalize us for over funding. Not us, they will penalize you.

Rob:  Right, the actual client. Sure.

David:  The Roth limits are higher than the normal IRA limits.

Rob:  That’s good to know. Here’s a question. We were speaking of the IRS. Can the IRS garnish or seize any of the assets with these savings?

David:  Yes.

Rob:  They can. They are susceptible to that.

David:  They are susceptible to that. From what I understand, the normal practice would be a garnishment more than a seizing. A lot of people haven’t started pulling that money out yet or they’re not at the age, from what I understand. I’m not an IRS attorney.

Gary:  Yeah, and we don’t give legal advice.

David:  We don’t give legal advice at all. But yes, they are subject to being garnished or seized.

Gary:  The IRS has a very wide swath in what they can do. There are some things that are shielded. We don’t necessarily get into the legal aspect of that. You can get with the attorney of your choice or we have attorneys we work with that can get very specific, but it is a case‑by‑case situation.

David:  I’d like to clarify what I said, when I said Roth IRA limits are higher. That’s not what you can contribute. That’s your salary limit, when it starts tapering off. That’s what I mean by that.

Rob:  OK. A small element. We mentioned the IRS and garnishment. What about bankruptcy? Is this a liquid asset that can come up in bankruptcy?

Gary:  In certain situations, yes. But, once again, we don’t get too much into the legal aspect of it. Rarely do we come across that. Most people just want to get started and find out how much they can invest.

Rob:  Sure. But they can contact you, if they have questions about the differences between them?

David:  Absolutely.

Rob:  David, where can they call?

David:  They can call 972‑383‑1210.

Rob:  Can they ask for you by name, or Gary?

David:  Sure, absolutely.

Rob:  Or do they have to talk to Brian?

David:  They don’t have to, no. Or they can contact us on the website at www.riggwealthmanagement.com and they can leave an email for us.

Rob:  The phone number you gave out, typically, right now, there’s going to be a voicemail, but you’ll answer the calls?

David:  Absolutely.

Rob:  And respond. Good. That’s going to be great.

Gary:  Our policy is we try to get back within the next 24 to 48 hours, one of us.

Rob:  And a complimentary consultation.

Gary:  Yeah, complimentary. No cost.

Rob:  No cost. Coming up next, social security. What is the big difference between benefits and income? We’ll be back after this break.

SEGMENT 3

Rob Dalton:  Welcome back from the break. I am Rob Dalton. I’ve got two special guests with me today.

Gary Bilyeu:  I’m Gary Bilyeu.

David Rigg:  And I’m David Rigg.

Rob:  Both of these gentlemen work with our Wealth Professor, Bryan Rigg at Rigg Wealth Management. We’re going to burn this segment and talk about Social Security. It covers so many levels of our lives, both young, and mid‑range, and in retirement.

We’re going to talk about something that’s so multilayered, I’m not sure what to do with it. We’re going to talk about some of the differences between Social Security benefits and Social Security income, and I’ll turn to our resident expert on this, Gary Bilyeu.

Gary, thanks for helping me with this. Can I collect Social Security if I’m still working? I’ll start there.

Gary:  The short answer is yes.

Rob:  Yes, that’s great. That’s a good answer. I like that. Give me a couple of examples.

Gary:  I have a lady that is my assistant, and she’s been collecting Social Security once she turned 62. Now she does that as early age. You’ll see most everyone in the listening audience gets some type of Social Security statement, an annual statement, and it’ll have many different numbers on there.

One of them is when you turn 62 to collect early Social Security, but most everyone else falls into one of several other categories. A couple of years ago, there was issues with funding. This government entitlement cannot go on indefinitely, so they revamped a few things.

Most people, to get their full retirement, it’s going to be in one of 10 categories. That is 65 and 0 months, and then they add 2 months to that, so 65 and 0 months. 65 and 2 months, 4 months, 6 months, 8 months, so on and so forth, and that’s how you’re determined.

Everyone’s going to be different based on their age, and so, you really have to look at your statement to see where you fall. It’s easy to do. If you got it in the mail and threw it away, you can always go to the Social Security Administration’s website. Type in your information, and you can print one out.

We encourage those that are retiring to bring that statement in because we view Social Security just as another source of income, another stream of income. That actually makes our job easier because that’s less money we have to generate…

Rob:  Right, less strain.

Gary:  Right. We can reduce the risk if you have a guarantee. The other time you can say “guarantee” is when you’re talking about the federal government who prints the money. That is a guaranteed stream of income. I don’t want to use the word “elderly,” but people that are closer to retirement can count on that. It’s a commitment from the government.

Now, I’m in my mid‑40’s, and I’m not counting on it for me personally, and I’m telling my kids not to count on Social Security.

Rob:  Right. Just plan on not having it…

Gary:  Plan on not having it, but while it’s available, then that is very important in your retirement planning.

Rob:  I felt a lot of comfort in one of the statements you made that if you have that coming, and you have your statement, and you can apply it toward your retirement, you can reduce the risk.

Gary:  Absolutely.

Rob:  I love that element. I’ve thought of that before, but it really can just add a layer of comfort.

Gary:  Because what we’re doing, as your financial advisor is ‑‑ you’ve built up a cash cow, your nest egg, from all your years of working. A lot of people look at that and say, OK, here is my number, and that is going to be reduced a certain amount every year, how long will it last? We don’t look at it that way.

We look at it as the day that you stop working, this cash cow, or this nest egg, that money needs to start working for you. So how much does that generate? How much does that nest egg generate? If your burn rate, if your expenses ‑‑ let’s just use an example.

If you need $5,000 a month to maintain your current standard of living, and you have half of that coming from Social Security, guess what? We take your nest egg, and as long as we can generate the difference, a shortfall of $2,500, that’s easy. If we had to take that same nest egg and try to generate the full $5,000 a month then there’s probably going to be more risk, generally speaking. Does that make sense?

Rob:  It really does. Let me ask you this. We talked about how you can start it at 62, or maybe 65 and 6 months, but how long can I put it off? Can I avoid getting it till I really need it?

Gary:  You know what, that’s the best kept secret. You actually can. When you’re eligible for your retirement and you don’t need it ‑‑ maybe you’re still working, or you don’t want it ‑‑ you can defer it to age 70, and it draws a very nice interest rate over that period. Then you’ll have to start drawing it, and I believe it’s by 70.

What I would tell the listening audience is if you have a specific question, we can’t answer every question there, call us. Call our office and ask for Dave, or Bryan, or myself, Gary. Give us a call, 972‑3831‑210. Call us.

If we’re in the office, we’re going to answer the phone, and if we don’t, it’s because we’re with a client. We’re either in the office with a client, or out with a client, but we try to return calls within 24 hours to 48 hours.

Rob:  And if you don’t have the exact answer, you know where to go to get it, right?

Gary:  Yes, that’s the right answer. We’re good at a lot of things, but we can’t be…

Rob:  Masters of everything.

Gary:  …masters of everything, but we have resources at our disposal. We have advisors we work with that focus on Social Security. It’s one phone call for us to get our associates on the line, paint the situation, and get an answer.

Rob:  That’s great because I was going to ask you, regardless of the complementary consultation, it really is relatively easy for you to work with Social Security in setting up your financial plan.

Gary:  What we’re looking for is that piece of paper that tells us what you paid into and what you’re estimated benefits going to be, and then we can take that into consideration when we’re looking at your overall plan.

It’s very important. If you’re eligible to draw Social Security, then we definitely want you to bring in that piece of paper that tells exactly what you can plan on.

Rob:  All right. I’m going to throw you a curve ball here because it just kind of came up in my head. We talked about going online and getting your own statement. Aren’t there opportunities for spouses to get their spouse’s Social Security as well?

Gary:  We’re dealing with the government now.

Rob:  Yes, I know.

Gary:  We’re dealing with the government. Families look at it different that the way the government does. The government looks at it if it’s a married couple, it’s really two individual Social Securities.

Rob:  It is.

Gary:  And so, yes, there are ways. Like everything with the government, there are rules and regulations and limitations. In most cases, yes, you will be able to get either a death benefit of your spouse, or draw your spouse’s benefit. The government sees it as two different benefits, so there are nuances that may not add up

Rob:  Hurdles and hoops.

Gary:  I’m getting this amount, my spouse is getting this amount. If I add those two, that’s what I’m going get. Not necessarily.

Rob:  That’s where a phone call to guys would work out best.

Gary:  Yes.

Rob:  Just call and ask for Gary or David, and you’ll get the answers to your questions. Let me ask you this also. Regarding income, let’s say you’re 68 or 70 and you’re getting that Social Security Income, is it taxable? Because it is income.

Gary:  It is.

Rob:  The government’s giving you your money back, but you have to consider it as taxable income.

Gary:  Yes.

Rob:  I tapped on this at the beginning of the segment because we are talking about a multilayered topic of Social Security, but what are some of the Social Security benefits? It’s different than an income, correct?

Gary:  Technically, yes, but when we’re looking at it, we try to simplify things. As da Vinci said, “Simplicity is the ultimate sophistication.” We try to keep things simple. We just do. If we look at things differently, if we just treat that as a stream of income ‑‑ the government says this is the amount they’re going to give us ‑‑ we take that number and then we see what you have.

I know Bryan’s talked about it many times. Say you’re drawing four‑percent out of your cash cow, or your nest egg, and let’s just use round numbers, say $1 million. Four‑percent of that is 40,000 bucks. If you have that same amount coming in Social Security that’s like having another $1 million nest egg. Does that make sense?

Rob:  It does. It can be part of your diversity.

Gary:  Absolutely. You paid into it. Even though it’s not an individual retirement account, or it’s not an employer‑sponsored account, it’s still an account that’s going towards your retirement. Who cares where the stream of income is coming from, it’s about stream of income.

Rob:  Correct. Just cash the checks.

Gary:  Exactly.

Rob:  Yeah, that’s true.

David:  This all comes up whenever we do a complementary consultation. It’s trying to get the complete picture of what the client needs. If he, or she is going to get some Social Security benefits that definitely has to be factored into the equation.

Rob:  It does. We’ve talked about this topic once a couple of weeks ago, but Bryan, our Wealth Professor talked about how he’s even gotten on the phone with the client and the Social Security Administration to get the right answer.

It’s easier for the client to actually explain the situation than for maybe you guys to get wrong. You’ve set up those conferences as well.

Gary:  We do a lot of that, and it’s not just Social Security. We’ll do it when people are moving 401K’s and other things. They want to talk to you. You’re their client. You have to give them permission to speak to us, and so that’s when we’ll get on there and we’ll ask the specific question.

Let’s face it. We don’t know what we don’t know. You can’t just say call Social Security and find out what’s going on. You don’t even know where to start. If we get them on the phone, we can ask them the specific question, hopefully, we’ll get a specific answer to our question, and then we can move on. We get the information we need, we know how to proceed, and we move forward.

Rob:  In a new direction.

David:  You need to know where you’re going, especially if you’re driving the car.

Rob:  That’s great. Let me ask you this. For those that make a higher income, you can actually max out with what you contribute to Social Security, is that right?

Gary:  Max out what?

Rob:  You can pay so much per year and then you end up stop paying Social Security.

Gary:  For the Social Security tax, you mean.

Rob:  Yes.

Gary:  Yes, you can.

Rob:  But after a while, you get to a certain level, and you actually don’t pay it anymore for each calendar year.

Gary:  Well not for each calendar year. It goes year to year. If you make a certain income, over a certain level, yeah, you’ll only pay Social Security taxes up to a certain point.

Rob:  One last question. If you have someone coming in your office and they’re in their 30’s, is this Social Security issue a big topic for them?

Gary:  It’s like I mentioned earlier, I say let’s not count on it. If it’s there, great, it’ll be a benefit, but let’s not count on it being there.

Rob:  Treat it as a bonus.

Gary:  Treat it as a bonus.

Rob:  It’s a factor, but it’s not part of the solution, is that correct?

Gary:  Yes. But when people fail to plan and they make the conscious decision to rely on the government, they are relying on that being there. I’m not willing to do that. I’m not comfortable doing that with myself, so I can’t advise somebody to do something I wouldn’t do.

Rob:  Now it’s something that you address when someone comes in their late 50’s or 60’s, absolutely, but in their 30’s, it’s not always necessary.

Gary:  Yes. You’ll be surprised how many people in their 30’s are not counting on it. Yeah, they’ve broken the code.

Rob:  David, someone wants a consultation, what do they do?

David:  Well give us a phone call, or get on the website, either one. The number is 972‑383‑1210, you can call us. Or you can send us an email on the website and ask for us to get in touch with you, and we will do it within 24‑48 hours.

Rob:  And Gary, it doesn’t have to be about Social Security, does it?

Gary:  No. Heck, we get questions about what’s the best way to finance our car, and I don’t like getting into those. But you know what, there’s a lot of factors that go into this and we need to have those conversations.

Rob:  What’s the website?

Gary:  Www.rigg, R‑I‑G‑G, wealthmanagement.com.

Rob:  We will be right back.

SEGMENT 4

Rob Dalton:  Welcome back, our WRR audience. My name is Rob Dalton. I’ve got two special guests. You, sir?

Gary Bilyeu:  I’m Gary Bilyeu.

Rob:  Excellent. And you sir?

David Rigg:  I’m David Rigg.

Rob:  We’re going to primarily speak with David this time, but Gary’s allowed to chime in, of course. The good thing about having Gary and David here is they work with Bryan on a daily basis.

They are at Rigg Wealth Management. All three of them have been in the Marine Corps. David, what’s your experience?

David:  I went and enlisted in the Reserves when I was 19 years old. I did the Reserve thing, while I was going through college, weekends and a couple of weeks in the summer. After I graduated college, I went through OCS.

Then I went through Flight School. I flew Harriers. Then I was a flight instructor on A‑4s and T‑45s, down in Kingsville, when I got out. I was in a total time of about 14 years.

Rob:  14 years? All right. Gary Bilyeu, what about you?

Gary:  Somewhat similar. I actually went to college and then enlisted. My parents were scratching their heads.

David:  They still scratch their heads.

Gary:  Thanks Dave. After a short time, I was picked up to become an Infantry Officer. I’m still in the reserves. I’ll have 24 years in September.

Rob:  I bring that up, because this particular segment we are doing is going to be about veterans. There’s not really much we can do here, at Rigg Wealth Management, differently than other financial advisors. But we seem to have more of an understanding and an empathy for their situation, wouldn’t you say David?

David:  Absolutely. We talked the other day. Only seven percent of the people in the United States have actually served in the military. All three of us have. Any time you call us and talk to Rigg Wealth Management, if you are a veteran, you’re talking to a veteran. Nobody else in the office has not served.

Rob:  That’s true. We don’t really treat veterans any differently. But you have a deep and inside understanding.

David:  Absolutely. Absolutely.

Rob:  That comes in helpful, when it comes time to plan for the future.

David:  What we try to do with the veterans, a lot of them maybe will have a pension or maybe will have a Thrift Savings Plan that they had started in the military or something along that line. We do the same thing that we do for most of our clients.

We try to bring what their assets are under one umbrella, so that we can help them manage and go forward. You have to understand, a lot of retired veterans are still very young. You could have gone in at 17 years old and retire with 20 years and you’re only 37 years old.

Rob:  You are not ready to retire.

David:  You are not ready and probably not able to, at that point.

Rob:  Good point.

David:  We’ve got to take the assets that you have and get you pointed in the right direction and get you going.

Rob:  When someone comes out, let’s say they are 37 or 38 years old, even 40. They have something, but when they bring it to you, you can help them manage it better.

David:  Absolutely. We can start getting that to be more productive for them. We also understand a little bit that the military to civilian transition is sometimes very difficult for people. It was, even for me, when I got out.

I’d been a Captain in the Marine Corps. I’d been a fighter pilot. I’d been a flight instructor. You come out into the civilian world and you’re just whatever.

Rob:  [laughs] That’s true.

David:  They don’t care.

Rob:  You have no title.

David:  You have nothing. A lot of people struggle with that. We understand that. I did.

Rob:  You did, after only 14 years.

David:  After only 14 years, yeah. I went in when I was 19 and I got out when I was 33. It was almost my whole adult life at that point. It was all I’d done. It was a tough transition for me.

Rob:  Is it easy just to leave the money there or does the military force you to do something with it?

David:  If you’re getting a pension, if you’ve got your 20 years, you’re going to get that check every month.

Rob:  If you’ve got 20 years.

David:  If you’ve got 20 years. That’s the cut out. It has changed. Now I’ll bring Gary in here. When I was in, if you did 20 years, you got 50 percent. If you did 30 years, you got 75.

I think that has changed, hasn’t it Gary, since I got out?

Gary:  Yes David, it’s changed a couple of times. You’re not a spring chicken.

David:  No, I’m not.

Rob:  It’s been a few years…

[crosstalk]

Rob:  …14 years.

Gary:  Dave, you mentioned something, the Thrift Savings Plan. That is very similar to what a 401k is. It is an additional investment vehicle, if you will, in addition to your pension. So there may be some needs and want to know some options. It’s like a lump sum, a nest egg.

Really I think you hit it, is the transition. Now you go from a pension plan, where somebody else made all the financial decisions for your retirement.

Now you’re in corporate America and you have a 401k. Now you have to make those decisions. We can help.

David:  We can help with that. There are a lot of things that will be tied in with that. If you’re in the military, you’ve got health care. You’ve got a place to live. You’ve got a pension plan.

As soon as you leave the military, you’ve got none of that. Do you have adequate insurance needs or coverage? That’s one thing that we can look at.

How are we going to plan for retirement? What does your new company offer? Is it a 401k? Are you on your own? Do you have to have an IRA?

Do we need to start something along that line? There are a lot of differences from being in the military to being a civilian.

Gary:  That pension plan is just a stream of income, but it’s never enough to maintain your current standard of living. You’re going to have to start a second career. In almost all cases, there is a second career.

You have all those decisions that we have to make here in the public, in private sectors, outside of DoD.

David:  All three of us have had to do that.

Rob:  That’s true. What I’m picking up on is, when you’re serving, you don’t need the discipline, because they save it for you. Correct?

David:  As far as the pension plan is concerned, yes, absolutely.

Rob:  But then, all of a sudden, when you become a civilian, it’s now up to you. People don’t have the discipline yet.

David:  Or just the knowledge of that’s what needs to start happening.

Gary:  They just don’t have the expectation. It’s all been done for you. Where we may have started in corporate America, right out of college or right out of high school, and you picked up over the years, now you just spent an entire career and you retired.

But you haven’t stopped working. That’s just one stream of income that you developed over 20 plus years. Now you’re starting another career.

Rob:  It doesn’t really matter, when they come out of their service, what level they’re at, does it, as far as ranking?

David:  As far as percentage‑wise, what they’re getting? No. No.

Rob:  No. Their ranking doesn’t really matter. It’s just an income source.

David:  In terms of percentage of income, that is correct.

Rob:  All right.

Gary:  I would agree.

Rob:  Where do you start, when someone comes to you? Let’s say they put in 18 years. They’ve been on a new job for three years. They come to you and they want to start planning for the future. They realize that what they have is not enough.

David:  They’re starting over, because, at 18 years, they will have no military benefits.

Rob:  That’s why I mentioned that.

David:  Right. Whatever their employer is offering and whatever they’re doing on their own, that’s where they’re going from. You’ve got to remember, you’ve got to do 20 years.

Gary:  They may have a Thrift Savings Plan, which, for DoD, is relatively new. Many federal employees have had that much longer, at least from a Marine Corps perspective. I don’t recall exactly, but it wasn’t in my entire 24 years that I was able to contribute to the Thrift Savings Plan.

Rob:  David, people that are veterans can come to you for a complimentary consultation. How do they get hold of you?

David:  Absolutely. Absolutely. Call us at 972‑383‑1210. Or they can get us on the website at www.riggwealthmanagement.com. Either one will work.

Rob:  Your empathy, compassion and understanding is all absolutely free?

David:  That is totally free. That is correct.

Gary:  This is no cost. No cost.

[laughter]

Rob:  Thank you. I want to say thank you to both of you, as well as Bryan, who’s probably listening at home, for your service to our country. Thank you very much. We appreciate that.

David:  Thank you.

Rob:  We’re going to take a break. Be sure and visit their website, riggwealthmanagement.com. We’ll be right back.

SEGMENT 5

Rob Dalton:  Welcome back from break. I am Rob Dalton. We are Wealth Strategy with Bryan Rigg, but Bryan’s on vacation, so I’ve got two special guests. Over here is Bryan’s brother.

David Rigg:  I’m David Rigg.

Rob:  And Gary.

Gary Bilyeu:  Gary Bilyeu.

Rob:  Gary Bilyeu. They both work at Rigg Wealth Management with Bryan. They are key players, and who you can talk to when you call and need more information. We’re going to focus on one of Gary’s specialties.

Gary Bilyeu, his work’s primarily with insurance and pension plans, for quite some time, but he’s well‑rounded in a lot of financial areas. This segment is directed at those who work in our public school systems, whether you’re a teacher or an administrator.

We’re going to talk about TRS. It’s a teacher retirement system of Texas. We’re going to burn this segment, and we’re going to close this show with TRS questions. I know it’s summertime, and teachers are out. They’re not thinking, right now, about working, but boy, they’ve got to be thinking about making their next paycheck and saving for the future.

Gary, what is the plan, and who benefits from TRS?

Gary:  Let me give you a brief background. I helped my first teacher retire in 2002, so I’ve been working with teachers for a long time. I’m very familiar with the process, the paperwork. I’m an advisor to several school districts in the North Texas area.

I say advise, because I don’t go in there offering products or anything else. It’s just the service. I try to educate teachers on the TRS, the teacher retirement system, and how it works.

What I find is most teachers, educators, or people that are in the TRS system, they really don’t know how it works until that internal clock tells them, “I’m either ready to retire, or I think I want to retire sometime soon,” and they start trying to figure it out.

We try to go in there every two weeks, or at least once a month, to different schools, and do presentation seminars, and just educate them. We have several presentations we give, but it’s mainly what’s important to them. Every school district, heck, every campus is different.

Rob:  It can be. It is somewhat of a government agency, so it’s not made to be simple, and that’s where you come into play. [laughs]

Gary:  That’s our opinion, but the government agency would probably differ with that.

Rob:  They’ll call it diverse, because…

[crosstalk]

Rob:  …so many needs.

Gary:  Yeah, but that is a defined benefit plan, or pension plan. There’s no responsibility on the individual teacher, educator, administrator, or anyone in the system, to make those financial decisions. You need to know the simple formula of how to calculate your retirement.

Rob:  What is that formula?

Gary:  Very simple.

Rob:  Keep it simple for me. I’m not a teacher, but I’ve got a calculator.

Gary:  Three things you need. First off, you need to know what tier you’re in, and that means something, because it defines what rules apply to you. It’s going to be either your highest three years, or your highest five years of salary. They take that average. It’s either your highest three or highest five average salary. That’s the first variable.

The second is years of service, and that’s, in my opinion, the most important, because years of service multiplied by the third factor, which is the multiple, and currently, it’s 2.3. You take the years of service times 2.3, and you come up with a percentage. That is a percentage of your average salary.

Rob:  That’ll give you what your payout, or pension…

[crosstalk]

Gary:  Yeah. Here’s a quick example. Let’s do easy math.

Rob:  Let’s do that.

Gary:  Say you work 30 years, and the multiple is 2.3. You multiply that together, and you come up with 69 percent. Take the 69 percent times your average. If you average over three years or five years, say, $50,000…

Rob:  A nice, round number.

Gary:  A nice, round number. Multiply that by 69 percent.

Rob:  That’ll be your expected income.

Gary:  Yes. That’ll be your annual amount. Then one more step. You’ve got to divide that by 12, and that is your monthly amount, or your standard annuity.

[crosstalk]

Rob:  I like that simple math. I can even follow. That’s great. Let me ask you this. I did the math. You’ve been doing this for 15 years.

Gary:  Yes.

Rob:  I didn’t need a calculator for that, either.

[laughter]

Rob:  What advice would you give a first year teacher starting out today? Let’s say they’ve just got out of school, and they’ve been hired. They’re going to start teaching in August.

Gary:  Let me throw this out there.

Rob:  Go ahead.

Gary:  Based on the current multiplier, 2.3, you have to work 22 years to get half of your income. If that’s your basis, your starting point ‑‑ and that’s to get half of your average…

Rob:  Half, 22 years.

Gary:  Yes, to get half. Most people would say, “Heck, I can barely make ends meet now. If I have to take half of it later on, that could reduce my standard of living.” What I tell them is, “You really need to do something to supplement your retirement. Don’t just rely 100 percent on TRS. That’s the TRS math.

Rob:  Again, we’ve referred to it, and everyone knows the clichÈ, don’t put all your eggs in one basket. Don’t count on this as being the sole source of your income, especially if you’re starting year one as a teacher. Know your options.

Gary:  Right. Even people that have an employer‑sponsored plan, like a 401(k), they still do things on the outside to supplement it.

Rob:  They do.

Gary:  Why wouldn’t you do that here?

Rob:  Right, and it’s a teacher salary, it’s going to be tough, but TRS does allow you to save for the future, but realize, it’s 22 years to get half of your salary…

[crosstalk]

Gary:  It’s just over half, and so you’ve got to get started. That’s the most…Dave says something that I love. He says, “You have time and money. If you don’t have a lot of one, you have to have a whole bunch of the other.”

Teachers would say, “Hey, we don’t make a lot of money,” and many would agree with that, but the young teacher getting started has a whole bunch of time, so get started. You don’t have to put a lot away, just get started. Get in the habit.

We all have cell phone bills and those type of things, and many of them come out on an automatic bank draft. Pay yourself, that old clichÈ. Pay yourself first.

David:  I would say in my own experience ‑‑ my wife’s a teacher.

Rob:  Your wife’s a teacher.

David:  Yes, she is. She teaches second grade.

Rob:  You have a deep personal interest here.

David:  A little personal interest here, and I would say that most of the teachers, most of her friends that she works with, don’t have the understanding that Gary’s just brought out.

They don’t look at it. They assume the TRS system is going to take care of them, and when they finally get to the end of 20 or 30 years, and they look at it, there is a lot of uh‑oh moments, that if they had had somebody talk to them earlier on, maybe we could avoid some of that.

Rob:  I see. Yeah, you’re right. That uh‑oh moment, “I’m three years from retiring, and this is what I have?”

David:  “This is what I have,” yes.

Rob:  We talked about the time and the money issue…

[crosstalk]

David:  Exactly.

Rob:  …that comes into play. That’s a great example.

Gary:  There’s three ‑‑ the big three, I call them ‑‑ three questions I get. Most of them, the first one is this. “When can I retire?” We can sit down, do the math and work through that. The second one is, “How much will I have?” Once again, we can sit down and do the math.

The third one is, “What are my options?” When you get ready to retire, there are several options you have to choose from, from the standard annuity, and then options one through five. We can sit down and explain that.

Rob:  That’s good. Let me ask you this. We talked about how it might not always be enough. What other ways can teachers or an administrator add money to increase their retirement?

Gary:  Many schools have other employer‑sponsored plans, like the 403b. Many of them think that that’s an annuity. It’s not. A 403b is just an employer‑sponsored vehicle, just like a 401(k). There’s 457 plans and things similar to that.

Many of the teachers end up doing an outside individual retirement account, just like we talked about. Many of the young ones will do a Roth. They can contribute where their TRS contributions come out automatically, it’s a fixed amount based on their income. Their IRAs can be the maximum right now, is $5,500. They can do that. There’s other means.

[crosstalk]

Rob:  There’s options.

Gary:  They can do an individual account if they want, as well. It’s not a retirement, but it can be used for retirement.

Rob:  Let me ask you this regarding TRS. What happens to the deposits made if they quit early or make a career change after, say, 15 years?

Gary:  You don’t always have to take the TRS retirement. One of the options is, “I want to liquidate my account.” You treat that just like a 401(k) where you left your employer. “The money’s there. What do I do?”

Rob:  Take it with you.

Gary:  You roll it.

Rob:  Or roll it over.

Gary:  Roll it over, and we don’t want any undue tax burdens, so we roll it over into a like account or an eligible retirement account, and go from there.

Rob:  Gary, you specialize, or at least work primarily with TRS and have for 15 years. Complementary consultations. How do they reach a hold of you?

Gary:  I want to be clear, because I don’t work with TRS.

Rob:  It’s a factor.

Gary:  Right, it’s a factor.

Rob:  Thank you.

Gary:  I understand the system, and I’m not an employee of TRS.

Rob:  [laughs] True.

Gary:  I simply understand their benefits, and try to stay up to date. Give me a call at the office. Our number is 972‑383‑1210.

Rob:  Perfect.

Gary:  You know what? You can always reach out on the website, as well.

Rob:  Riggwealthmanagement.com.

Gary:  That’s it.

Rob:  Thank you for joining us today. It’s been a great hour. We hope you learned something. We’ll see you next week.