This week, we continue our Smart Retirement Plan series by discussing Smart Safe and Smart Tax strategies. Ed explains how you can beat the bank CD rates with alternate safe money investments. Plus, we take a look at the potential increases that could be coming to Social Security payments in 2023.
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PP Full Show 8.19.mp3: Audio automatically transcribed by Sonix
PP Full Show 8.19.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Producer:
Welcome to Prosperity Principles with your host Ed Crews. Each week, Ed and his company seek to educate Americans like you by providing real strategies for protecting and growing their hard earned money. Get it for a full hour of financial information and economic news affecting your bottom line. Ed wants you to reach the financial freedom you've worked so hard for. So now let's start the show. Here's Ed Kruse.
Ed Cruz:
Thank you for tuning in to another week of prosperity principles amid when crews and of course what we want to do here is give you some education. Let's talk about your future. And at this point, let's also welcome in my host, Matt McClure.
Producer:
Hey there, Ed, how's it going?
Ed Cruz:
It's going great. Another another rainy week in central Florida, but the weekend has shaped up to be a nice weekend.
Producer:
Yeah. You know, it's well, I often say if you're in central Florida, you don't like the weather, wait about 5 minutes because it'll completely change. That's it. But yeah, we've got a great show this week once again, you know, we started last week at our Smart Retirement Plan series. We sort of set the groundwork for, you know, getting people started off on the right foot on their retirement planning. And so this week, we're going to continue that. Know, we talked last week about smart vision and smart planning. So getting that destination where you want to go, what you want your retirement to look like in mind, and then starting the planning process. Well, this week we're going to continue that for folks. So a lot of great stuff to talk about there. And of course, folks, if you want more information about Ed or about the show, you can go to the website for Prosperity Principles. It is my prosperity team, time.com. That's my Prosperity Team dot com. Or you can give out a call at 3862285769. And remember also the show is available wherever you listen to podcasts. We're talking stream yard, we're talking Apple Podcasts, all the biggies. And you can subscribe there. Leave us a rating. We would really, really appreciate that. But a lot of great stuff to come up here on today's show, Ed.
Ed Cruz:
That's right. And for all the listeners out there, as you said, if you want this book, I also want to offer them the annuities, do's and don'ts. And so for anyone that's wanting some additional education, 3862285769 is the number to call. And you know, I was looking at an interesting article here earlier this week, and it was again, I always talk about housing and how that affects us all because, you know, it generally is a sign of recession. And so, you know, although they're not telling us where they are yet, but home sales again fell by 6%, which now puts us in the recessionary territory when it comes to home sales, which year over year are now down over 20%. So, you know, we want people to be aware of where their money is because when the bottom drops, it can drop quickly.
Producer:
Now, you know, it's been it's crazy because it's been a seller's market in real estate for so long now. And it's just kind of gone crazy here over these past couple of years. And we saw home prices just skyrocket. And now, yeah, the prices are coming back down. I have seen just because I, I keep checking the real estate websites myself because I might be in the market to buy something here in the next little bit. And so I keep, you know, checking the, the websites and stuff and I keep seeing houses that should have sold by now staying on the market. And those prices, those list prices, the asking price is coming down, you know, a little 10,000 here, five or 6000 there. Week by week. And so I'm thinking to myself, okay, well, I'm just going to if I'm trying to get into the market, I'm going to hold on a little while and see see what happens here.
Ed Cruz:
You know, the average home used to sell in from hours to just maybe a couple of days. And now we're seeing that go all the way back to about 14 to 18 days, I believe is what the number was. So, yeah, things are slowing down and we just need to be aware of all the indicators that are out there so that we don't make a mistake with our which are with our financial future now.
Producer:
And part of that, too, as you well know, is the the increase in interest rates. And we've we've been seeing that with the Federal Reserve now a couple of rate hikes of, you know, 75 basis points. So three fourths of a percentage point. In the the benchmark interest rate that the Fed sets. And so we actually just got this past week minutes from the latest Federal Reserve meeting. And they said in there that. Then any. Future interest rate hikes would be based on what's going on in the economy right then. So they're not saying, okay, we're guaranteeing that we're going to raise interest rates by another three quarters of a percentage point at our next meeting or anything like that. But it's going to be based on what is happening. Although, you know, what has been happening has been, you know. A lot of inflation. And so to tamp down on that inflation, they might have to raise interest rates another couple of times. Over the next few quarters going forward.
Ed Cruz:
Yeah. They don't want to spook anyone but the. The overall quiet. You know, talk right now is about. 50 basis points, half a percent so. I think that's on the horizon. In the very near future, I should say. So let's see where where it goes.
Producer:
Yeah. We'll have to pay attention and see where things are going because if if there's one thing that's certain, it's uncertainty these days, it seems like. But of course, folks, if you want some certainty in all of the uncertainty that's out there, what we would like for you to do is get in touch with Edwin Cruz, who is, of course, the host of Prosperity Principles here. And he will give you a full retirement plan consultation. This is and this is not just a broad kind of overview. This is this is a comprehensive consultation. And it's at no cost to our listeners and at no obligation, right, Ed?
Ed Cruz:
That's right. And we do want to emphasize that because. I spoke to friends recently out on a boating event. And you know, we're sitting there talking about finances. They had some questions and, you know, they were asking me exactly what it is that I do. And I had to apologize to them for not making it clear after they told me that they met with this certified financial planner and it cost them about $2,500. And they wanted me to give them a second opinion. And upon the review of the second opinion, you know, they were asking me what I was going to charge them. And and I emphasize to them, I don't charge you for this review. But we did find some things that were just fine, that were done by the that was done by the individual. And then we found some some things that we said, you know, we can improve upon that. So, you know, it doesn't matter where you get your information from, how long you've received this information and how long ago it was. Times have changed and changed dramatically. And we have to make adjustments just like just like the the wind flows, the currents flow. You know, your finances can quickly flow up or down. And we definitely want to take advantage of of not making mistakes by getting a second opinion.
Producer:
Yeah, that's right. You know, we often say that you go to the doctor and you find out you have to have major surgery or something, right? So in that case, you want a second opinion. It's the same kind of thing with your finances, even though, you know, it doesn't necessarily have to be a situation where, oh, I have to have major surgery on my finances. You could be doing okay right now, but just because you're doing okay doesn't mean that you can't do better, right?
Ed Cruz:
That's right. You know, let us analyze your situation. We'll closely examine any product that you have, whether it's annuities, stocks, bonds, mutual funds. You know, we'll take a look at it, see what you're comfortable with, what you're not comfortable with. And and we'll help you from there. You know, we'll we'll discover exactly how much you're paid and fees help you cut any unnecessary costs within your IRA 401. K or any other retirement savings account. And we'll also help you with Social Security planning. And another funny thing this week, you know, I said, you know, I talk about this. They used to send you a report year after year. They no longer do that to us younger folks out here. So what I've just done is create a an account on the Social Security Administration website. But sadly, I couldn't get my information. They're sending me out some kind of a pin or something, so I've got to go through the process. But that's all right. You know what? At least I started it. I want to keep an eye on it. I used to all we up to. I think the last report I got was 2014 or 16, something like that. And so it's been too long. I've got to keep an eye on it myself. If I'm talking about it with others, why not keep an eye on it for myself? And so let us help you with that. Let us help you with the options in Medicare. We'll compare your again we'll compare your current situation to the custom plan that we can build for you. And if you haven't heard from your advisor lately, please talk to us and get a second opinion. We want to help you reach financial freedom.
Producer:
Yes, absolutely. And we also want to give you a free copy of the book. As we were saying earlier, Annuity 360 also have annuity do's and don'ts to give you as well, completely free of charge. And to get that, you can just go to my prosperity team. That is my prosperity team all together, all spelled out as one word dot com 3862285769. Once again is the phone number that's 3862285769.
Producer:
And now for some financial wisdom, it's time for the Quote of the Week.
Producer:
And this week's Quote of the Week actually comes from Henry Ford, who is a guy you might have heard of there, and, of course, founder of the Ford Motor Company.
Ed Cruz:
I think I've owned a couple of their vehicles, too.
Producer:
Yeah, that's right. Maybe not like the original Model T or anything. But, you know, so some of those Fords that are still around these days because they've been going strong for quite, quite a while. And so he had some wisdom to share that applies to more than just finances, but that's what we are going to apply it to today. The quote from Henry Ford this week is whether you think you can or you think you can't. You're right. And that's true.
Ed Cruz:
Very true. You know, if you before you get something started, if you've already defeated yourself, the outcome is not going to be great. And but if you do see yourself enjoying and having success, you know, you can accomplish that. So absolutely. I definitely without actually saying the quote, I've definitely thought about this this process in the past. Your mindset makes a difference.
Producer:
Absolutely. Your mindset, your attitude about the situation that you find yourself in, you know, no matter what that situation is or what challenge you might be facing. Yeah, your attitude does say a lot about where you're going to be headed because yeah, you're absolutely right. If you've already defeated yourself, then there's not much of a chance that you can overcome that obstacle that's trying to defeat you as well. So, you know, you can't you can't be fighting against yourself when you're also fighting against the obstacle that you want to overcome. So so put all your energy into overcoming it and have that positive attitude. That's going to be something that goes a long way toward really helping you reach whatever goal it is.
Ed Cruz:
But you can't fake it right? If you're saying.
Producer:
Something.
Ed Cruz:
That's sound joyous, but you're saying it with with a heavy heart, it's just not going to sound right.
Producer:
Right. You're like, I am so happy right now. You know, it just doesn't quite work.
Ed Cruz:
It doesn't.
Producer:
Absolutely. Well, that is our Quote of the week. And as we said earlier on in the show, just a few minutes ago here, Ed, we're starting part two of our retirement, our Smart Retirement Plan series, I should say. We did part one last week. It's part two this week. And we've got a couple of different topics to cover when it comes to the Smart Retirement Plan. We've got smart, safe and smart tax. So we'll tackle the taxes in a few minutes, which is which is always fun for everybody. Everybody just loves taxes. So we'll talk about that in a few minutes. But right now, we're going to talk about Smart, Safe. So talk. I think the first thing that we should probably talk about here at in this segment, what do we mean by smart, safe and how does something like a bond replacement strategy go into that?
Ed Cruz:
Well, you know, bond or bond replacement, it's simple. It's straightforward. It's just removing bonds from your portfolio in favor of investments with with higher returns. And why do we want to replace bonds? Well, they have historical low returns. And and we know that that's on the horizon. If you think about a bond right now with rates rising, if you have an old bond with yields that are higher than those old ones, you know, your your principal on that bond is actually decreasing. And if you need the money in the future, obviously liquidity is going to be a huge concern because when is that bond going to come back? Do we expect rates to go back down to where they were any time soon? I don't think so. If if there's an expert out there that thinks so, I haven't heard them mention anything like that either. And so, you know, Bonds used to be considered a safe part of your portfolio. But when you think about what I just said and your principal could actually dissipate in a bond, this is why we should get bonds replaced. And, you know, again, a couple of weeks ago, I spoke about a Harvard Business Review.
Ed Cruz:
And, you know, when we think about a smart retirement plan, you know, the the customer the employee needs to worry about three things their retirement income goals, how much he or she is prepared to contribute from her current income and how long he or she plans to work. You know, income in this category must be inflation protected and guaranteed for life. So we should be shielding our retirement dollars from longevity risk, from interest rate fluctuations and inflation. And of course, we have a lot of these problems today. And so in order to increase the amount of guaranteed income and beyond those benefits, the bond holder or pensioner would have to buy an inflation protected life insurance product or an annuity from a highly rated insurance company so that they can see the results in the future. So it's it's fair to expect people to provide for their retirement, but it's not fair to expect them to acquire the expertise necessary to invest wisely. So when we talk about bond replacement, obviously there's a there's a purpose for it.
Producer:
Yeah. And that's one of the big things that you just mentioned there from that Harvard Business Review article was not being able to outlive that income. And that is something that my mind immediately went to something like a fixed indexed annuity because those products are built where, you know, you can't outlive that income. And as a matter of fact, there are certain, you know, products that that will allow you then to help to have that income continue on to your spouse after you are gone. So it's can be beneficial not only to you, but then to your spouse after you are gone.
Ed Cruz:
Right. You know, when we think about risk, you know, it's rare that we ever think about this, this thought of longevity risk. And, you know, for us men, we should by now be educated enough to know that women outlive us generally. Right? So when we think about longevity risk, you have to think about it not just for you, but you've got to think about your spouse as well. So, you know, it's a topic that that we really need to talk about more often. Longevity, risk, it's very important.
Producer:
Yeah, absolutely. And you know, we talked about, you know, we've been talking about bond replacement and how bonds just sort of used to be kind of the bedrock of safety and in a portfolio. Right. And they used to people used to have the what is it, the 6040 split, right. 60% stocks, 40% bonds in their portfolio. But that's sort of gone a little bit the way of the dinosaur here as people invest in other avenues, fixed index annuities being one of those. And we've got the Fed raising interest rates, as we have said earlier, the Fed raising interest rates this year, slowing its purchase of bonds. So the climate for those long term bonds less favorable in the future, that is according to Kiplinger. And so that's just one reason why you might want to consider something like a bond replacement, like we're talking about maybe with a product like fixed fixed index annuities, if that's right for the particular client. And as we always say, it's not one size fits all. So what's if it's fixed indexed annuity might be right for somebody while a fixed annuity might be right for somebody else, you know, it could be one or one or the other or neither. It just depends on the individual situation.
Ed Cruz:
It does, and it just depends on that client's timeline. Horizon right there. Horizon on when they plan on retiring. And, you know, like we said, bonds are paying historically low interest rates, which which means if long term bonds fall in price, we could be looking at low a low yield investment for years to come. Bonds have set interest rates and set maturity dates. They issue at par generally at 1000, meaning if you're loaning the government or meaning that you're loaning the government or a corporation 1000 and their length of time that you have on this bond. For it to reach maturity can range from 1 to 40 years. I don't know about you, but I wouldn't want to have my my assets tied up for 40, 30, 20 years inside of a bond. Just it doesn't make any sense. And and when interest rates rise, as they have recently, like I said, the bond prices fall, there's no guarantee when you'll be able to get your money back. And, you know, I've seen this in the past where clients all invest 50 to $100000 in bonds and and now they want to get out of them. Ten years later, they've been receiving their their their their monthly income from the yield. But the bond is now only worth 75% or 90% of of whatever they invest it. And so when you talk about tying up your money, you could be tying up not just in years, but you could it could just be tied up just because there's too much of a loss for you to sustain and just replacing that bond. So I we're going to be careful with what we do, but we're going to give you the best advice possible. And we do have annuities that offer bonuses, and we could help offset those losses and get you out of that mess. But of course, in order to do that, all you have to do is pick up the phone, give us a call. 3862285769.
Producer:
Yeah. And we know we've talked a lot here in the past few minutes about annuities and people might have questions about them. What, what are they? How do they work? How can I learn more about annuities? That's also the number to call if you want to find out more about annuities and actually get a great free way for you to do that. It's the book Annuity 360. You can get that absolutely for free. As I said, 3862285769. That's 3862285769. Or go online to my prosperity team dot com. And of course as we continue on here and there are some big advantages as we've been saying to a product like fixed indexed annuities, you know, limiting losses, you can protect your gains possibly. You can definitely protect that principle because, you know, even if a market index that it's tied to that particular fixed indexed annuity is tied to, even if it goes into negative territory over a particular period, that principle is is protected. You're never going to earn less than 0%, in other words, or lose anything over that particular time period. There's protection against inflation. There's tax deferred growth as well. So there's a lot that that are, you know, advantages. There are also some disadvantages to fixed indexed annuities, though some people might need to be aware of, right?
Ed Cruz:
Absolutely. You know, all annuities come with what's called surrender charges. And that's why we say every plan has to be individually crafted for you. You know, if you're telling me that you need a lump sum of of of whatever you invest in six years, obviously, I don't want to put you in a ten year term annuity. Right, if you tell me. Yeah, no, I plan on keeping that in there for for 15 years. Well, obviously, first of all, I don't offer anything that's of that type of length. But we want to make sure that we use a combination of what we may be able to do to maximize the growth over over that length of time. So that's one of the disadvantages, surrender charges, right? So as long as you plan properly, that shouldn't be a problem. When we talk about indexes versus, let's say, stocks, there's going to be a difference in in the game. There's there's a potential limit on the gain. Now, what I can say to that, you know, for the most part, if you get yourself into an S&P 500 index, if you go directly through a, let's say, a brokerage account, you're going to get 100% of the gains, but you're also going to get 100% of the losses. With a fixed indexed annuity, you may end up getting 40 to 60% of the S&P 500 gain, but when the market goes down, you get to keep it all. So it just depends on what you feel more comfortable with. Right. And so there are certain things you can expect. There are certain things that you should be looking forward to.
Producer:
Yeah. And it's it's funny because, you know, people invest in the stock market are sort of used to that roller coaster ride and this this, you know, takes those big dips out of that roller coaster ride when you're talking about fixed indexed annuities.
Ed Cruz:
Yeah, it's like I always say, and I think I treat my my emotions this way. Right. I don't like to get too high. I don't like to get too low. And when you think about an investment of this type, you know, you don't have to worry about any of the lows, but you can still participate in in most of the gains. And there are indexes out there that will give you more than just a 100% why people will will question that. And that's because some of these lesser known indexes, we could also pay an extra fee to buy more that index. So that par rate of 1000, let's say now, becomes a par rate of 1500. So to put that in more understanding terms, 100% participation, 150% participation, some of these indexes today give you 200% participation. So if you make 5%, 200% participation is going to give you a 10% return. I think that's a very fair return for a product that gives you 100% safety.
Producer:
Yeah, absolutely. And as we said there, you know, that principle is protected when it's inside a fixed indexed annuity. And, you know, even if people want to be if if they're even more risk averse, as we like to say, you know, there are other products like like a fixed annuity, a plain old good old fashioned fixed annuity, where in the contract, when when you sign on the dotted line, you know what the returns are going to be year by year going forward. So that's a little more certainty there, not the potential for larger gains, but if you're the kind of person who likes to know, okay, I've got to have something concrete so I can plan, that might be a better option for that particular person.
Ed Cruz:
You know, we just got done speaking about bond replacements, but we could also look at CDs and say we have a CD replacement plan. You know, these multi year guaranteed annuities where a CD is going to give you one and one half to 3%, we're looking at four and one half percent to 4.75 on a fixed on a fixed annuity. So that's a it's a great deal if you're looking for guaranteed returns in and safety on your money CD replacement is is just as good as as as anything else.
Producer:
Yeah and so that if folks is kind of an overview of smart safe kind of the first part of our smart retirement plan that we're looking at today and you know, taking some of the some of the risks, some of the uncertainty right out of your retirement plan going forward. Well, we also need to and I know it's really only a three letter word, but but most people consider it a four letter word, and that word is spelled tax. Tax. Yeah, that's something that we've got to talk about here, because taxes are something that people often I feel like overlook even just because we don't like to think about them. I think it's probably human nature. But the next part of our smart retirement plan in our series here is smart tax. So when we look at taxes in retirement, how do we go about planning for them in a smart way?
Ed Cruz:
Well, I mean, obviously, what you want to do is divest the IRS from your retirement accounts. And you could do that through life insurance index, universal life insurance. We could do that through 1035 tax free exchanges of cash values into an index linked universal life policy. You know, if you think about taxes, you think about returns, it's not always the same, right? If you're making 10% through a brokerage account and you're making 10% through a fixed indexed annuity, that 10% that you made over at the brokerage account is going to get added on to your income, which is now going to raise the amount of tax liability that you have, therefore giving you less of a net profit. Right? If you have a 10% gain inside of a fixed indexed annuity or fixed annuity or fixed indexed universal life plan or a Roth plan that we may be able to put in place for you, the key is deferring the the amount of money that you would have paid in taxes, keeping it there. And by keeping that money there now your net return is a true 10%. And next year, when you earn, let's hypothetically say another 10%, now you're going to get to earn on that previous 10% and the money that you didn't pay in taxes. So the compound effect, as we always like to talk about, that's always that's always a true statement. You will have more at the end of the day. Now, at some point, the IRS is going to come looking for their money. But when they do, you'll still end up pocketing more for yourself. So it's all about understanding the the differences on accounts and how they're taxed.
Producer:
Yeah. And, you know, having having that knowledge, as we say, often, knowledge is power, right? There are a couple of different ways that your accounts can be taxed. And we're talking about tax exempt and tax deferred. Right. Talk about that for a little bit.
Ed Cruz:
Yeah. You know, a tax exempt account is tax when you contribute, but not when you withdraw. And that's a great benefit in retirement because you don't have to worry about being in a different tax bracket than when you contributed those dollars tax deferred account is it's going to give you the tax benefits up front. You won't pay taxes when you contribute, but you will pay taxes on any distributions in the future. So, you know, again, we have to sit down, see where you're going to be if you don't have a lot of taxable income in the future, you know, it's going to give us a little more leeway on how we on how we prepare your plan. If if we see it, there's going to be a lot of taxable income in your future, then we definitely want to make a plan and go for tax free income in the future. So all this it does matter. And and that's what the that's why we analyze the entire situation. It's not just looking at what your returns are. It's not it's not just looking at your taxes, you know, your spouse. Who else do you support? What are your liabilities? There's a lot to it now.
Producer:
No, and that's absolutely right, that there is a lot to be considered. And it's not a one size fits all thing, you know, I mean, we're not talking about something that is just going to be where kind of like where you go to the store and there's hanging on a shelf somewhere. There is a retirement package. And I'm like, Oh, well, this looks good. I'm just going to buy this same retirement package that thousands of other people have come in here and bought at this one particular store. That's not how it works. It's all got to be custom tailored. It's all individualized to you because everybody is different. And just like that, everybody's financial situation is different. So so that's what we have to to look at. And I wanted to say to that I would encourage our listeners, if you missed the show last week, go to the website, My Prosperity Team, or you can just search for prosperity principles anywhere you get podcasts. Listen to the show from last week, and that was part one of the Smart Retirement Plan series, because we really you alluded to this a moment ago where we're encouraging people to to get a vision of where they want to go before they sort of start getting it planned out. Right. So we talk about that. We talk about what does that smart vision look like? What is how do you get that destination in mind? And then how do you go about the first steps of of starting to plan for it and plot your path there? So that would be a great thing for you to check out, folks. My Prosperity Team again is the website and you can go to Apple Podcasts or Spotify, any of those places as well, and Search for Prosperity Principles. So we know we've been talking a lot here about life insurance and talking about taxes and life insurance. Somebody who is just sort of a casual listener, maybe a first time listener of the show, might be saying, okay, what in the world is this talking about taxes and life insurance? What what's the benefit of life insurance when it comes to taxes?
Ed Cruz:
Well, we all know that the greatest benefit of life insurance is that the death benefit paid out by the insurer is tax free. Sometimes the beneficiary may be required to pay taxes on any interest accumulated by the policy, but never on the base amount. And so, you know, that's just your your basic life insurance. And at this point, one that we that we offer quite often or that we recommend quite often is is an indexed universal life policy. And the people will ask me, why is it that you would recommend that over a whole life? And and I tell them, well, it's it's the way that it that it's it's the growth potential inside on that cash value. Right. Instead of receiving a fixed rate. Again, it's like looking at a fixed annuity and a fixed indexed annuity. If you're looking for more of that jolt, if you're looking possibly for tax free income out of your out of your life insurance plan, then we should seriously be looking at an index, universal life, where we're going to have cash values that will that will increase much, much faster due to the use of indexes inside of it. And the universal life policies give the policyholder the chance again for a higher rate of return and in a tax free income. So we want to look at these. These solutions for for retirement.
Producer:
Right. Absolutely. And, you know, people hear that term tax free and they think, oh, this is this this sounds great to me. And we would, of course, encourage our listeners as well once again to call ED 3862285769 to find out more about that and get that free consultation. That is, as we said earlier, an in-depth consultation that we offer absolutely free and obligation free as well to our listeners. Well, you know, Ed, we were just talking about taxes there. And, you know, one thing that that gets taxed are the Social Security benefits that are paid out to folks when they're in retirement. And there's I actually did a piece this week on the cost of living adjustment and predictions for what it could be in Social Security next year. There could be a hike in those payouts to Social Security beneficiaries in 2023. It could be pretty sizable, but there also could be some unintended consequences there and some things that you need to prepare for ahead of time. Let's listen to this. We'll talk about it for just a bit on the other side. And then we've still got plenty to come. We've got the problem solver we've got this week in history. We're going to do in just a bit. So still a lot more to come in the show. But let's listen to this and we'll talk about it on the other side. Social Security will get a big cost of living adjustment next year, but there could be some consequences you might not have considered. I'm Matt McClure with the Retirement Radio Network powered by a merrill Life. A new report by the Senior Citizens League says Social Security beneficiaries could see a cost of living adjustment or COLA as high as 10.1% next year. The reason? Inflation running at a 40 year high.
Mary Johnson:
This is a very, very unusual and unprecedented pattern of inflation that we're experiencing.
Producer:
Mary Johnson with the nonprofit group, told WPTF TV that surveys show inflation has caused about half of Americans to spend their emergency savings and people are carrying more debt on their credit cards. So the highest jump in Social Security payments since 1981 would be a good thing, right? Well, Johnson says it's better than no increase, but there are some things to be aware of.
Mary Johnson:
In fact, you can get penalized if you think your tax liability is going to be 10% more next year than you're paying now. You can be penalized if you don't send in estimated payments or have more money withheld.
Producer:
She told the TV station the increase would not be enough to cover a jump in Medicare Part B premiums, which are taken directly out of Social Security checks. And she says higher incomes mean some seniors could no longer be eligible for some other government benefits.
Mary Johnson:
And then a whole 15% were made ineligible because they were their incomes increased over the income limit for food stamps or rental subsidies or the programs in their area.
Producer:
So what should you do? Johnson says Prepare now. Talk to a financial adviser to help you get ready ahead of time and contact local nonprofits if you need help paying bills. So are you prepared for the unintended consequences of a larger Social Security check? That's a key question to consider as inflation impacts all our lives. With the retirement radio network powered by a married life. I'm Matt McClure. So there you go. And a little bit about Social Security, the cost of living adjustment for next year. Prediction, it could be north of 10%, but but again, there could be some consequences, especially when it comes to things like taxes and things like that that people might not be aware of.
Ed Cruz:
As they always say, what the bold print giveth, the fine print taketh. Right.
Producer:
So, yeah, you know.
Ed Cruz:
We can look at it as a, you know, I always say more income is good, but if you're going to pay taxes and then your net result is is negative, obviously that's bad. And at times we need to figure out what we might be able to do to adjust that. In some cases, if we have income plans going, we can always make an adjustment to to one of the incomes. Obviously some of the fixed areas we can't change. But again, as times change, we try to help you navigate those issues.
Producer:
Yeah, and that's, that's what it's all about is helping folks navigate the changes and navigate anything that can be confusing out there because there are a lot of different options to sort of wade through for your retirement planning. And as we've been talking about during our Smart Retirement Plan series, you want to be smart about it. You want to have all the information and you want to have help along the way. So that's what we are here for. That's what Ed is particularly here for, is to help. Folks along in this whole process. And once again, folks, my Prosperity Team dot com is the website if you want to learn more.
Producer:
It's time for this week's Problem Solver.
Producer:
Yes, it is that time once again, I think probably my favorite time of the show where I get to present a problem and Ed gets to solve it. That's why we call it the Problem Solver segment, and I'm lucky. Luckily this week I am presenting someone else's problem instead of my own. So at least. At least there's that. At least I'm not the one causing the issue. Yeah. It's a rare thing for me to. But here is the problem to solve. I'll sort of lay it out for you here. And we're talking this week about a married couple. They're in there. They're in their fifties. But, you know, 58 and 55. They want to retire about 7 to 10 years from now. They're saving $52,000 a year in tax deferred 401 401 accounts for retirement. They've saved 1.2 million total in their 401. K plan. So they've got they've got quite a bit there. And, you know, because this is all tax deferred money, they're concerned about what we were just talking about a few minutes ago, their tax risk. In the future, they expect to receive about $47,000 in combined Social Security income per year, and their expected retirement expenses are going to be right around $6,000 a month. So with all of that knowledge that I just laid out for you here, Ed, how would we come up with the solution to their problem?
Ed Cruz:
Well, the the married couple choosing to invest in an EU policy which would reduce their taxable income now would would generate tax free income for retirement later. So. They're also investing into an annuity or they can invest into annuity to protect the percentage of their assets and establish another income stream. Additionally, they can begin to convert some of their tax deferred retirement savings into Roth IRAs. So once they stop working, this would help them to reduce their their future tax exposure.
Producer:
Yeah. Roth IRAs are another one of those things that we talk about that are that are going to be very tax advantaged, tax free later on in life, as well as that, you know, life insurance index, universal life being the one that we've talked about here on the show today. So there are options out there for them. It sounds like a few kind of diverse options in there to help them along in, you know, really protecting themselves as far as taxes go. Because as I said earlier, it's you know, taxes are one of those things that that we all hate and we don't like to think about. But there comes a time when you got to think about them, especially when it comes to your retirement planning.
Ed Cruz:
Yeah. At some point you have to come to a realization that you don't have the solution for that and someone else out there does. And that's why we we say getting a getting a second opinion, a third opinion, whatever it might be for you. It's important because covering these covering these topics, you come to find out that there are ways to shift your assets. It's not just, you know, get into stocks, mutual funds or or whatever it may be. There's a there's a combination of of solutions out there for you. And, you know, knowing all of your your the different areas that are out there would be a smart thing to to participate in.
Producer:
Want to know where your hard earned money is going. It's time for an inflation demonstration.
Producer:
Well, this week we've talked a little bit about inflation already, as we so often do, because it's been it's been quite a topic of conversation here for us, because it affects everybody in many different ways. And our inflation demonstration this week is actually something that comes from an economics reporter, Jeff Cox, over at CNBC. And we've got a situation here where we're looking at wholesale prices actually falling in July for the first time in two years, a plunge in energy prices really slowing the pace of inflation there. And this is the producer price index. This is why I think people are a little bit encouraged by this. The producer price index is sort of seen as a barometer for inflation. Right. So it actually fell half a percent from June to July. And that's the first month over month decrease since April of 2020. That was the month after COVID 19 began as really a crisis here in the US. So I guess is that am I, am I still just the guy editor who likes to look on the bright side a little too much as far as inflation goes? Or should we look at this as maybe a hopeful sign that things are going to get better at some point in the future?
Ed Cruz:
Well, listen, I will I will go both ways on this one, right? I just I don't see it yet. But do I want inflation to slow down? And does our or do our listeners want that to happen? Absolutely. We definitely want to see see changes. And and I hope that this is a sign of things to come, although I'm not completely convinced. And, you know, economists surveyed by the Dow Jones had been expecting an increase of about 0.2%. So on an annual basis, the index rose by 9.8%, the lowest rate since October of 2021. And that compares with an 11.3% increase in June and the record of 11.7% gain in March. So before July's easing, prices have been running at their highest levels in more than 40 years. And of course, we know the supply chain issues, demand imbalances, the high amounts of fiscal and monetary stimulus associated with the pandemic had driven up the CPI rate past 9% and well above the Fed's 2% long run target rate.
Producer:
Yeah, that's what they always shoot for, and it's sort of more normal economic times for years and years and years. We talked about the Fed keeping interest rates at or near zero for so long because that because inflation had been running at or near that 2% target. Well, now, you know, we've seen we see what's happened, right? Inflation running now at 40 year highs. And so interest rates going up as a result to try and cool off the economy and bring down inflation because it has been just running so, so high. And, you know, as we were talking about earlier, the Fed with that, you know, three quarters of a percentage point increase in the interest rate here recently, this new data could be something that might cause them to to lower that expectation going forward, because we had talked about a potential for a three fourths of a percent increase at the next Fed meeting. But as you said earlier, we could be looking at maybe a half a percent instead of that three quarters percent that that a lot of folks had been expecting.
Ed Cruz:
Yeah, that's the talk now, half percent, like I said, quietly. But, you know, where does this all lead to? We'll have to see what the next quarter, third quarter brings our way. And I think that will I think that should cement which way everything's going to move. Right. Third quarter should be the the end of the argument.
Producer:
Need a higher rate of return from your safe money. Listen up, it's time to beat the bank. Cd rates.
Producer:
This is this is huge. Right? Let's lay out this issue here for us as we start our beating the bank CDS segment, because there are some pretty startling numbers.
Ed Cruz:
Well, yeah. You know, according to bankrate.com, as of this week, Bank of America is offering a whopping 3/10 of 1% on a two year bank CD. Now, there are longer term CDs, which I kind of refer to just a little while ago. But why settle for a fraction of the percentage at a brick and mortar bank when when there are multi year guaranteed annuities or as we call them, majors from highly rated insurance companies, even on two year products that are that are better than 3%. And if you're looking for a little better yield, we can go up to, like I said before, somewhere between four and a half, four and three quarter percent on a on a five year multi year guaranteed annuity, which is comparable to to a CD. So you should know that you'll be taxed on those earnings, as we were talking about earlier, about taxes. If you're inside of a CD that you should know that you will be taxed on interest earned each year with a bank CD, but with a multi year guaranteed rate annuity, you're only taxed upon withdrawal.
Producer:
Yeah, and that's I was astonished because I was looking up a little bit earlier on in the week these numbers and that 0.03% interest from Bank of America. That's according to the numbers at bankrate.com on a two year bank CD. I was sort of astonished that it was that low. But yeah, I mean, and there are a lot of other brick and mortar banks that don't offer much better. You know, Wells Fargo actually was right in that same vein. And we're looking at a couple of the biggest banks in the country. But there is, as you say, this MIGA, as we like to call them, the multiyear guaranteed annuity. That that's another option for folks. And, yeah, it's it's something that, you know, could provide a greater return over just a couple of years or a five year guaranteed rate annuity, as you as you said, as well. So, yeah, that's something that I think people should consider because when they look at those numbers, it's pretty astonishing the difference between those two things.
Ed Cruz:
You know, if you if you like sweet tea, why would you get unsweetened tea and put sugar in it? Right. That's what you're going to get with a CD. You know, you want to you want a decent rate. You want a reasonable rate of return. You're not going to look at CDs. You're going to want to look at multi year guaranteed rate annuities.
Producer:
Yeah, I love that. I love that illustration. I'm going to steal that from now on about because I love me some sweet tea. So there you go. I'm all I'm a Georgia boy. I love my sweet tea. So that that's I'm all about it. Well, folks, that is a segment that we like to call Beating the bank CDs. And as we've just illustrated, you can do that potentially with a multi year guaranteed annuity. And if you'd like more information on multi year guaranteed annuity products, maybe help some some ways that you can beat the bank CDs. Just give Edwin Cruz a call at 3862285769. That's 3862285769. Or you can go to the website for the show my prosperity team dot com.
Producer:
Here's the cost cutter of the week.
Producer:
So of course we like to talk about saving money as far as putting it away, saving it for retirement and investing it for retirement so that it grows and you have more money in retirement. That's a big thing that we talk about here often on the show, but we also talk about the another way to save money, and that's by not spending it in the first place. Right. So take us through our cost cutter this week. And I think this is a good idea.
Ed Cruz:
Yeah, you know, I would say fairly simple, but it's all about discipline. Like I always say, you know, use budgeting apps like True Bill to track and reduce your expenses. You know, call your bank or credit card companies and change your credit card numbers or, you know, just go to another bank and get yourself a whole different credit card so that you can reduce your rate. You can contact us today for free retirement income gap analysis, and we'll provide this on the front end to ensure that your budget and retirement doesn't have any big holes. And again, we talk about having budget surpluses and and or or retirement income gaps, and you should know where you stand. Or if not, you could you could end up in some serious trouble in the future.
Producer:
Yeah, absolutely could. And you know, I like that part of the tip there about calling your bank, your credit card company. And I love your point, too, about, you know, changing companies, potentially closing one account, going with another one. If you if you can get a lower interest rate on a on a card. And then if you do that, that can really help you get rid of those subscriptions that you might not even know that you're paying for anymore. You know, the thing if you've got oh, you know, I bought I got a Hulu subscription one time two years ago to watch one show. And while I binge watched that show in about a couple of weeks and I've been paying for Hulu ever since, well, that's one way to stop it, you know, and anything else that you've gotten that you have sort of forgotten about in the past could be a good way. You know, it got a different credit card number. It's going to it's going to stop charging it. So there are a lot of things that that can be solved potentially by that. And like you say, I like that tip also about just going in and changing companies altogether.
Ed Cruz:
Yeah, I was speaking from experience.
Producer:
That's the best way. The best way to speak. You're like, I have learned by doing this, folks, and I don't want you to be in a situation where you're paying too much or, you know, paying something that you've forgotten that you paid. Which, yeah, I've I've actually got a couple of subscriptions right now that I need to to cancel as well. But just a couple more minutes here to share with our listeners editor on this week's show. But before we go, it's this week in History. Yes. We like to take a look back at some of the big things that have happened this particular week in the history of our nation and our world, American history. First off, this week, Ed, and this was a big one for the USA.
Ed Cruz:
Yeah, that's right. On this date in 1959, Hawaii officially became the 50th US State. I'm sure that was quite some time for for the people of Hawaii. And you know, Hawaii was one of the several US states that was an independent nation prior to joining the union. And President Dwight Eisenhower issued an order for an American flag featuring 50 stars arranged in staggered rows five, six star rows and four five star rows. The new flag became official on July 4th, 1960. Of the 50 US states. Hawaii is the eighth smallest in land, but with 1.4 million residents ranks 13th in population. Population density?
Producer:
Yeah. A lot of folks on those islands, they're out in the beautiful Pacific. Well, big one there. That's right. Absolutely. Absolutely. Well, speaking of of some great things that happened on this date in history, in pop culture, on this date, back in 1987, the hit movie Dirty Dancing was released in American theaters. Of course, the iconic film now, it starred Patrick Swayze and Jennifer Grey. It earned $214 million worldwide. It was the first movie to sell more than 1 million copies as well on home video, which I didn't know.
Ed Cruz:
Very interesting. And of course, I'll close it out with sports. On this date in 1909, the first race was held at the Indianapolis Motor Speedway. The raceway was built on 328 acres of farmland five miles northwest of Indianapolis, Indiana. The speedway was originally founded by a local businessman for testing purposes pertaining to the automobile industry. And the rectangular two and one half mile track links four turns each exactly 440 yards from start to.
Producer:
Finish, an iconic piece of American history. And I didn't know that until a little tidbit there about it being for testing purposes, car testing purposes originally. So that's that's really cool. Well, that is a look folks at This Week in history. And one other thing that's history is this episode of Prosperity Principles, because we are just out of time and I have enjoyed it. Once again, Ed, remember, folks, my prosperity team is the website. That's my Prosperity Team, Dotcom, as I've said, and I have enjoyed it. Once again, sir, this week and I look forward to doing it again next week.
Ed Cruz:
Thank you to all the listeners and have a great rest of your weekend.
Producer:
Thanks for listening to Prosperity Principles. You deserve to work with a financial and insurance expert who can offer strategies for protecting and growing your hard earned money to schedule your free no obligation consultation. Visit my Prosperity Team dot com or pick up the phone and call 3862285769. That's 38862285769.
Producer:
It's not affiliated with the United States government. Edwin Cruz does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. A married life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness, or of the results obtained from the use of this information.
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