Podcast Episode 307: The Financial Draft – Where Would You Pick These Products?
In honor of the NFL Draft just wrapping up, we thought we’d do a little drafting of our own on the podcast. So we’ve asked Eric Hogarth, CFP® to put on his General Manager shoes and lead our retirement planning team into a financial draft. Find out which products make the grade and which get left behind.
First up are Roth IRAs. These are designed for you to pay less money taxes in retirement, which is why we would pick them early. It’s a great tool for saving money, and if you’re going to put money away for retirement, why not do so in a way where your growth is tax-free? It doesn’t apply to everyone, but it’s a product that gets a top grade.
Gold, and precious metals in general, is next up on the draft board, and Eric says he would pass. When people ask us whether they should own gold, they’re really asking us if there are other things they should be invested in besides gold. You shouldn’t have all of your money into any one thing, and precious metals can get dicey because people tend to put too much money into this investment. Even though it might seem more conservative, you can still lose a lot of money in precious metals.
What about a LIRP or a Life Insurance Retirement Plan? Eric gives that a third round grade and here’s why. Life insurance can be a fit for a retirement strategy regardless of age. Many people believe they don’t need insurance after their kids have moved out and they’re in retirement, but that’s not completely true. You might not need it for the same reasons you did 25 years ago but it might still have value within your portfolio. Some of the wealthiest people in this country leverage life insurance so don’t rule it out before talking with a financial advisor.
Next up is the annuity category and we’ll begin with the variable annuity, which is a market vehicle with an insurance wrapper around it. It’s designed to appreciate over time based on the market, which is good. But most variable annuities typically come with higher fees, which isn’t good. They might still be a good fit but there are more and more investment options these days that don’t include fees so there’s a good chance you can find something better elsewhere. That makes this product a pass.
On the other end is the indexed annuity, which gets a first round grade from Eric. This is a type of fixed annuity, which means you won’t be going up and down based on the market. If you play by the rules, indexed annuities are structured so that you don’t lose money. In many cases, you don’t have the fees like other annuities. The downside is you have to tie up your money for long periods of time and you don’t have as much upside, but the safety is worth the tradeoff for many people.
Let’s finish up with real estate and rental properties. A lot of people want to use this option to generate retirement income, but what does Eric think? He gives it a second round grade because he likes this investment conceptually. People typically buy rental properties for three main reasons: Cash flow, tax advantages, and hopeful capital appreciation. That doesn’t mean it’s going to be easy. It usually isn’t. But it can be a great way to generate income if you know what you’re getting into.
Most people don’t have a plan when they begin drafting investments onto their investment team and that can lead you to a losing record. Make sure you have the right strategies and a good team behind you by taking advantage of our complimentary Money Map review.
Here are some of the things we discuss in this episode:
1:11 – The Roth IRA is a first round pick
1:58 – Gold and precious metals are a pass.
3:18 – Life Insurance Retirement Plan or LIRP
4:41 – The variable annuity
6:37 – Indexed annuity gets a good grade
8:04 – Rental properties are a second round pick
12:23 – CEO’s Corner: How does Joel consume news?
21:32 – Mailbag question on how much of your annual salary you need saved.
