Ep. 1988: The Guarantee Mirage

SPEAKER_05 0:12

Cool as a Sunday in Addis. The money keeps its head. Everybody's chasing the hot thing. We take the slow road instead. On it all. Keep the cost low. Let it ride. Let it grow. Let it grow. Money making sense. Talking real money.

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There's one financial services industry, there's one part of the financial services industry that makes outrageous claims at times, and they get away with it for most

Insurance Annuity Concerns

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of the time. They really do. And that is once again our dear friends in the insurance industry. We're going to talk about them again today. Hi, everybody. I'm Don. That's Tom. This is Talking Real Money, the Smooth Jazz Financial Talk Show.

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We've got a little something to give you before you listen to that song again, just so you'll like it just that much better, baby.

SPEAKER_04 1:18

I'm feeling as mellow as I can possibly feel.

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By the way, speaking of the insurance industry, your former quarterback is there pitching him. That's the one thing I hate about NFL football. Now he's all over the advertisements and he's pitching insurance products. Painting Manning. I wasn't, yeah, Payton. Yeah, I did happen to catch that.

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So anyway.

SPEAKER_03 1:36

That drives me nuts. Well, okay, I could live with beer, but uh some of those insurance products. Okay, I can live with good beer. Yeah, okay. Well, that is a small problem. I just hate seeing him associated with insurance products, that's all. So it does add up, I'm sure.

SPEAKER_04 1:56

Well, and you know, they have a lot of money to pay people like Painton Manning because of the stuff they do with your money. Now remember, when it comes to insurance, we we're we're talking different kinds of insurance. Right now, we are we are not talking about property and casualty insurance.

SPEAKER_03 2:14

Correct.

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We're not talking about liability insurance. We're not even talking about life insurance. We're back to our dear friends, the part of the insurance industry that we really dislike the most, and that is their investment insurance products, aka annuities.

SPEAKER_03 2:31

And let me give you a number before we get into the industry. Yeah, go ahead. Annuity sales.

SPEAKER_04 2:37

Yeah.

SPEAKER_03 2:37

Just skyrocketing. I mean, the numbers are astounding. Last year, fixed annuities, $325 billion. Fixed index annuities. Okay, I don't hate. Now let's define these.

SPEAKER_04 2:50

Yeah. Let's define these. Okay. A fixed annuity is an annuity where you put your money in and they promise to pay you a fixed interest rate over a certain period of time.

SPEAKER_03 3:00

And today it's paying high fives? Yeah, high fives. Yeah. I mean, that's you know, pretty good. Trevor Burrus, Jr.

SPEAKER_04 3:06

Maybe six if you're you know shaky or insurance company. How do they buy the and and then a fixed-indexed annuity that invests in something wacky like some strange index they made up and you get a part of the return and you don't get any dividend anyway? It's just a confusing, it's basically a confusing product. But the fixed annuities, these are the ones where you look at them and you go, Oh gosh, if I can get about 6% on my money, pretty good. The best I can do, and uh and and it's guaranteed, they tell me. Yeah, they tell me that. It's guaranteed. Uh, and I would uh be stuck with, you know, at best five on a 30-year treasury, and I don't want to go out 30 years. No. So why wouldn't I go with that annuity? It sounds riskless and it's a higher return, Tom.

SPEAKER_03 3:49

By the way, the fixed index product, I didn't quite finish there, about $125 billion in yearly sales. That's not bad enough. Yeah, okay. So you get the products, and you understand, yeah, it kind of works this way, and they're sold to people getting close to retirement, right? I mean, this is a retirement product. This is, you know, I got my guarantee because I didn't have my pension. Had I worked for the fire department or the police department or somewhere else, private sector doesn't offer those anymore. I got my little bit of Social Security, but I'll supplement that by this automatic annuity payment. It just sounds wonderful. Guaranteed. Guaranteed, too. That's the word people love. They just love that word. So, okay, so what happens is you give them your money, right? That's up front. That's the you're you're you're handing them that money. The problem is what they do with that money that provides the additional capital to them and the risk, I think, to you. This comes to light recently because of the troubles of a certain Mark Walter, who is uh Now a lot of people aren't going to have a clue who Mark Walter is. Unless you're a sports fan, you don't know that he's, I think, the majority owners of the Los Angeles Dodgers, a very successful Major League Baseball team out of Southern California. And he owns them, but guess what? It's all borrowed money. I mean, this is at least when the tech guys borrow, I mean, tech guys buy teams, at least it's based on the stock that went up. In this case, his entire business empire is financed by hundreds of thousands of Americans who have bought annuity contracts. Uh, one of the insurers, Delaware Life, 10 billion in individual annuity premiums last year they collected. Um, and then what happens is okay, they take that money in, they got to start making those payments, but they need to make something above what they're paying you.

SPEAKER_04 5:48

Right. So if they're paying you six, they've got to make a lot more than six. Not just a little more than six. They have to make a lot more than six because they've got to cover Payton Manning and all of their other overhead expenses and turn a profit on top of that.

SPEAKER_03 6:05

And he's not the only one, by the way. There's Apollo and KKR, the private equity guys. They're doing the same thing. Um, they're collecting this money and then they're investing it. This is where the problem starts to show up, right? Because and it showed up previously. We had a full meltdown in 2008 by, I think it was the largest insurance company in the world at the time. AIG.

SPEAKER_04 6:27

I think they yeah, AIG. Yeah, they were huge. Yeah. And they're still huge because we as taxpayers bailed them out. Yeah, it's nice of us.

SPEAKER_03 6:36

Good deal.

SPEAKER_04 6:36

Um They made bad bets. Yeah. They invested in things that they thought were safe and turned out not to be safe. And it didn't matter if they messed up because they had too many policies with too many people for too many people, and the government had to save them. That's just uh it's uh it's to me, it's appalling.

Annuity Guarantees Questioned

SPEAKER_03 6:56

Yeah. Too big to fail, whatever return. And the marketing materials for these annuities, they use double-digit historical returns as a and again, this guaranteed notion. Now, some people have looked at this and said, this doesn't feel right, including, here's the part that should shock you the National Association of Insurance Commissioners.

SPEAKER_04 7:19

Yeah, and the product that they're talking about. Now we're into that fixed index denuity or uh equity index denuities. This is where the sales and the NAIC is getting involved because for a couple of reasons. One, the sales pitches, the fact that they're claiming returns that are unlikely, if not impossible, to get, and the fact that they are increasingly investing in illiquid, opaque, private credit investments, and they're worried and they also want to see tighter capital requirements in case these investments melt down. It's not in c it's not for when uh if these investments melt down, it's more of a when. Yeah. Some of these investments will melt down, I guarantee it. Some of them, I don't know which ones.

SPEAKER_03 8:07

They may be the beginning, by the way, of the next recession, because this is a place that it's riskier, right? They're paying out a little bit more and they're going to take it take take the fall. So, okay, so let's assume that something goes wrong. Insurer becomes insolvent. Right. Then the states have a pool of money that they've collected that they'll pay out. But I think it's, at least according to this piece, a capped at a quarter million a person.

SPEAKER_04 8:33

It's it depends on the state. And the problem also is different states have uh different levels of liquidity in those state insurance pools. They could run out of money and the the money is replenished. Guess who replenishes the state insurance money? The insurance companies.

SPEAKER_03 8:49

Yeah. They're the ones that got a chip in there. Um and I struggle that Mr. Walter has just used all this sort of borrowed, if you will, money, policyholder money to buy things like the Dodgers. And this is it he's in this is all under investigation now. This is all being reviewed and questioned. Trevor Burrus, Jr.

SPEAKER_04 9:09

Yeah. And by the way, his the company he's working with is Delaware Life. That was what the one we've got.

SPEAKER_03 9:14

10 billion they collected last year.

SPEAKER_04 9:16

And Delaware Life is a lot of companies now are are uh halting sales of Delaware Life products.

SPEAKER_03 9:23

Yeah. Um one one insurer said this is not right, even called every dollar inside a life and a new annuity carrier is policy holder money. So this isn't his money. This is the people that have paid in. But okay, let's just be clear about the guarantee in annuity, because this is the part that people, when they talk to me about it, they're like, well, you can historically show us that a stock to bond portfolio has made this for the last hundred years. That doesn't mean anything moving forward, but it's made that. But I got this other company that's willing to say, oh ho, ho, I'm gonna pay you 6% annuity for the rest of your year. I'm you're going to, and they always say make. I'm gonna make 6% a year. Not gonna make 6% a year, you're gonna get some of your money back, some of their money. But let's just assume something goes wrong, it doesn't work out. You've got to either rely on the insurance company, their resources, or these state guarantee associations that have this pool of money. That is it. The buck stops there. So I put it to you, Don. How guaranteed is an

What Annuities Really Guarantee

SPEAKER_03 10:27

annuity?

SPEAKER_04 10:27

Well, let me take let me take a step back. And and I want to, again, this is what's wrong with this industry, is it's very confusing because you kind of you kind of conflated two different types of policies. Okay, we've got the fixed policy and then we have the immediate policy. Uh and you said the six percent. Immediate annuities are actually paying much more in some cases than six percent. Wow. Because part of it is your principal coming back. So they can afford some of them are as high as ten percent. But a big chunk of the money coming back is your own money coming back to you. Now there are fixed annuities that actually pay out five and a half to six percent, and it is not your money coming back. Single life. That no, no, no. See, you're ca again, you're confusing the two. Fixed annuity is not an immediate annuity.

SPEAKER_03 11:16

It's just a contract.

SPEAKER_04 11:17

It's just it's like a C D. A fixed annuity is like a CD with an insurance company. Yep. You put your money in, they pay you an interest rate, you get your money out when the policy allows you to take it out without a surrender charge, and there's usually a surrender charge. So you get that. The immediate annuity, that's where you get into the single life, joint life issues, and that's where you get into they're also paying you part of your money back. So that again, another level of confusion, and then you throw in indexed annuities, and then you throw in variable annuities, and then you throw in all of these hybrid annuity products and annuities that have health insurance attached to them, and you have a situation where not even the people selling them understand them, and they certainly don't know the risk. They're just told to say there is no risk. Well, let me tell you, if AIG had been allowed to fail in 2008, 2009, we would have seen, and we saw this back in the 90s with executive life in California. Ah, you've forgotten that one, hadn't you? Oh, everybody forgot that one. Because most people who were involved are dead or they were too young to, you know, remember. But there were people who had executive life policies, investment policies, annuity type policies, who had to wait a decade or more to get paid back.

SPEAKER_03 12:39

Because the insurance If you're retired, by the way, that could be a very long time.

SPEAKER_04 12:45

Yeah.

SPEAKER_03 12:45

Yeah, and catch your money, yeah.

SPEAKER_04 12:48

And the problem is um a lot of these pools don't have a lot of money to back them up.

SPEAKER_03 12:56

Ah, that's the other case, yes.

SPEAKER_04 12:58

It's like well, um the I I had it here somewhere. Oh. Um Florida, they have an insurance pool, and at the end of 2025, because of all the insurance companies that failed uh because of Florida weather issues, they owed four hundred and thirty-three hundred four hundred and thirty-four million dollars to pay off those insurance companies' liabilities and had now they they still have a a surplus, but it was only five hundred and sixty-four million, which means that it it it only takes another hundred and thirty million dollars in property insurers or uh annuity providers to go broke. And Florida's out of money.

SPEAKER_03 13:42

They're out of money. I gotta ask, I gotta ask, is Florida's pool in one of those giant sinkholes that they have in Florida, or where is it exactly?

SPEAKER_04 13:49

Well, most uh we have pools everywhere in Florida. Everybody has a pool except me. I don't have a Debbie won't let me have a pool. I want a pool, but she won't let me have a pool. You're not gonna use it enough, and it costs too much to maintain it, probably.

SPEAKER_03 14:05

Just do it and then she comes home one day. What's that in the backyard?

SPEAKER_04 14:08

I gotta ask a question. Okay. If I if I dug eight feet down, I'd have a pool.

SPEAKER_03 14:12

That's true. The water would fill it very quickly. All right. So, okay, with all this in mind, all this in mind, there's still gonna be those among you who want to have an annuity uh because it's guaranteed and because stocks and bonds make you nervous. I get it. But my question to you, Don, I retook the risk quiz. Because remember, we talked recently about how I had a score in the 80s? I just retook it. I have a 60. Oh, you retook it? I retook it. I guess 68.

SPEAKER_04 14:41

Wow, you've got more conservative.

SPEAKER_03 14:43

Sounds familiar. Yeah, no. So the question to you is at what point if your risk score score is blank, should you probably be using an annuity of some kind?

SPEAKER_04 14:55

Uh there is no point. Okay. Because I was like, well, nervous Nellies, maybe they shouldn't have money in something guaranteed, air quotes. Yeah, that's the problem. We cannot I cannot state that they're guaranteed. The insurance industry would like me to say that because they bel they they are allowed to say that because they're not federally regulated. But the guarantee is not it is not as strong as the full faith and credit of the U.S. government by any means. It's just not. You can't argue that it is. So the the the there are degrees of I hate to say there are degrees of guarantees, but there are. That sounds like your next song to me. Oh, that is a good one. I've got to write that down.

SPEAKER_03 15:40

The degrees of guarantees.

unknown 15:43

Oh.

SPEAKER_04 15:44

If you please. I'm I'm writing a note, so uh degrees of guarantees. Can you you could speak while I'm writing?

SPEAKER_03 15:53

Oh, I see. Okay. Jeez.

SPEAKER_04 15:55

What kind of co-host are you if you can't if you can't fill the dead air while Don's writing notes to himself? Jeez.

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It didn't cross my mind.

SPEAKER_04 16:04

I'm bringing Roxy in.

Bridge, Banter, And Listener Mail

SPEAKER_03 16:07

I a lot of this is I'll tell you why. People don't know this. Don and I talk a lot, not just on the program, because we have other things we discuss. And so there are many times when we're having a conversation and you're doing something, and I don't talk. So this is it feels like that. Like we're just having a conversation. I know. So I I do apologize.

SPEAKER_04 16:26

So please take it too soon. On that note, we're just gonna move along and go do something different. Um because you, you are lovely, lovely listeners whom we love with all of our cherish you.

SPEAKER_03 16:39

Yes, we do.

SPEAKER_04 16:40

We and we we we get a lot of questions from you, and we're getting more again, thanks to the fact that we're back in the season where people actually think about money. Uh and uh sometimes Tom takes those questions that come in at talkingreal money.com and he just he feels like chatting. Which is very funny. My w my wife plays bridge every Tuesday.

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Yeah.

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Her dad was like a bridge master or something, so she she enjoys it. I love it. She said, I have to I have to head out early for bridge. And I said, It's like 9 30, and the bridge is at eleven. She goes, Oh no, I need to leave the house at uh at 10 30. I went, It's at the golf club, it's five minutes. It's walking, it's five minutes.

SPEAKER_03 17:20

Go slow.

SPEAKER_04 17:21

I need to get there early so I can chat.

SPEAKER_03 17:24

You know, there's the bridge is all about conversation time. I get it.

SPEAKER_04 17:28

You know, so Tom likes the conversation time. Tom is a lot like my wife, only far uglier. She's much prettier than he is. And he loves chatting. So he can't.

SPEAKER_03 17:38

I'd say that hurts, but it's true. It's true.

SPEAKER_04 17:41

I you know, you can't fight the truth. It's not, it's it's not slander if it's true. That's exactly right. My lawyer won't take that case. So Tom picks up his little phone and he calls you and records it.

SPEAKER_03 17:54

Let's go to Rock Hill, South Carolina and chat with Craig. Craig, how are you today?

SPEAKER_02 18:01

Doing fantastic. Thank you for uh inviting me.

SPEAKER_03 18:04

My absolute pleasure. Thank you for being a listener. And I got okay, I'm just gonna go ahead and say it. Craig sent me maybe the nicest gift I've ever got. He sent me an antique airplane. Not not a real airplane, I can't fly it or anything, but an antique model. It is so cool. I don't want to spend too much time on it. But um, I want to say thank you here on the program. It's awesome. It's on my desk at work. People come in all the time and say, Where, what is that thing? That is totally cool. And uh, so thank you so much for that. What a thoughtful gift.

Social Security Timing Advice

SPEAKER_02 18:32

You're welcome. Very good. Todd, my my question basically is uh when to start Social Security. I'm gonna be retiring uh here in the next uh month and a half, and my my bride will be starting uh two months from now. Yep. So I'm 66 uh and she is 60 gonna be 65 in November, so she's quitting on her birthday or retiring. And hers is going to be uh if she takes it immediately, will be $2,200 a month. If I wait until January of 60, when I'm 67 and a half, it'll be $32.50. Uh I have uh a Roth of $460, an IRA of $800, uh savings and brokerage of $180, uh, some company stocks $25,000, an annuity of uh $230 that's going to give me a monthly income of $17.53. So that's a total of almost uh $1.7 million. And my question is I just want a second opinion from uh my own advisor. Should I hold off as long as possible? My wife wants to take it as quick as possible, at least hers.

SPEAKER_03 19:54

Yeah, it's okay. Here's it. We can stop right there. She could take hers, and then yours being the larger benefit, you wait till 70.

SPEAKER_01 20:02

Do I and then where would I take my where would I take the income that I'm getting?

SPEAKER_03 20:11

Yeah, no, I mean then you start to you start to you'd pull from that taxable money. Well, you how soon can you annuitize your annuity and get collect the 1800?

SPEAKER_02 20:18

Uh that'll be annuitized and it's gonna be in February of 28.

SPEAKER_03 20:25

Okay, so that's still a year and a few months off. Um But here's the thing, you could pull from some of these other, I mean, you start with the the cash, the taxable part first, then you move to the IRA, but then then by hopefully at that point you're turning, you've got her social security, you're turning on the annuity. Um, I mean, I would only take Social Security early in your circumstance if I needed the money. If you had to have the money, or if you were sick, or some other reason. Because remember, here's the thing. Um, for you or your wife, here's the way I look at this. One of you will have that benefit after the other person's gone. So the larger benefit will survive whoever is the survivor. So from my household, for example, my wife has already taken hers, but I'm waiting until 70. So my benefit's gonna be pretty big. Should I keel over the next day? She will still have that larger benefit. That's how I look at the household situation. So in your case, I'd want you to hold out as long as you can. If you had to have the money, yeah, I'd pull it. But but your your plan should look at you know the survivability of your other assets, even though you're gonna draw some off them, especially in the early years, and then throwing in the annuity, but it should it should include all that. But yes, in a general sense, I'd love to see you wait as absolutely long to take that that benefit another at least another couple of years.

SPEAKER_02 21:42

So to be because I want to retire and be happy. So I know if I wanted to take more than what I really need in the first couple of years between the uh IRA and the uh cash, I shouldn't have any uh bad feelings or guilt.

SPEAKER_03 21:56

No, none whatsoever. No, none whatsoever. You're gonna take more at the Beginning because you're waiting on that social security benefit, you're getting the eight percent of your guaranteed increase, which no investment can give you, right? So yeah, so there that makes total sense to me. And and I gosh, I don't want you to feel guilty in any way. You've worked so darn hard as a small business guy and uh on the road and all that stuff. I hate to see you think about that at all. So I think you should go enjoy your money, put together the plan, spend the big part of it up front here while you can, while you feel good about doing things. Come and see us in Seattle, for example, and then um and then draw that Social Security when you absolutely have to.

SPEAKER_02 22:36

Okay, yeah, because I think our expenses are really well aligned. My my bare bones basic is just under $4,000 a month.

SPEAKER_03 22:42

Oh, you're not gonna have any trouble at all then. $2,200 plus the four plus another two off your assets? That's not an issue.

SPEAKER_02 22:49

That's just bare bones. You want to live off of seven thousand.

SPEAKER_03 22:53

There you go. I think you could make that work too. Because that'd be that'd still be that'd still be around four percent draw on your portfolio, which is fine. You're in a good place, man, and you should be in a good place. You've worked hard for it. I'm glad you're gonna retire, take it easy. You you leave the hard work to me. I'll just keep on working out here for everybody else. That's not a problem. And I'm kidding. I'm kidding. Yeah. Uh I'll do a parachute for that. The toughest part of my job is keeping Don in line, you know, and I've done that pretty well for a long time. So um, no, absolutely not, Craig. You're in a great place. I'd hold off on that Social Security as long as until you really have to have the money, hopefully at 70, because as I say, then one of you, whoever survives the other, will have that larger benefit for the rest of their lives. I think it's a huge advantage. Thank you very much for that. No, thank you. Thank you for listening. Thank you for sending me the plane. Thank you for being part of the program. Really appreciate it.

SPEAKER_04 23:46

And you see, he has this lovely conversation with you. That was just lovely. The other way he can answer questions, though, or we can answer questions, is when he gets them, prints them, holds them, looks at them, reads them, speaks the question like he's gonna do.

Social Security And Medicare Costs

SPEAKER_04 24:04

I think you have one right right now, right?

SPEAKER_03 24:05

Timber, there goes another tree. Anton from St. Regis, Montana. This now you gotta listen carefully. This is kind of complicated. Big sky gunner. He says, because the social Social Security Cola I think that's cost of living adjustment.

SPEAKER_04 24:21

Oh, I thought it was a new brand of like going up against Coke.

SPEAKER_03 24:24

You know, see the guy who the guy who invented new Coke just died and apparently took it with him.

SPEAKER_04 24:30

And uh didn't get to take his Social Security cola with him.

SPEAKER_03 24:33

Sorry about that. Okay, because Social Security Cola is based off each person's Social Security amount, the cola provides a higher benefit amount to those who are already collecting more. In other words, if you're getting a bigger amount and they raise it by three percent, then yes, you're getting more.

SPEAKER_04 24:47

Then in a dollar, yeah.

SPEAKER_03 24:49

Yes, a dollar amount. That makes sense.

SPEAKER_04 24:51

In a dollar amount, you get more. It's the same percentage for everybody, but your dollar amount. If you're getting $1,000 and they increase you 3%, then they're you're getting $30 more dollars. If you're getting $2,000 and they increase you three percent, you're getting $60 more.

SPEAKER_03 25:06

Clarity provided. Conversely, writes Anton, the Medicare Part B premium increases by a percentage of the flat dollar amount, thus impacting the lower Social Security recipient by a greater percentage.

SPEAKER_04 25:21

Yeah.

SPEAKER_03 25:22

Okay. Okay, that's that's true.

SPEAKER_04 25:24

I think that's true. Because basically, what they're doing in that case is they're making sure they cover their rising costs.

SPEAKER_03 25:31

Exactly.

SPEAKER_04 25:32

So it's a different formula.

SPEAKER_03 25:36

First, isn't the impact of this over the course of a 25-year retirement pretty devastating when you consider health care premiums have intended to inflate two and a half times the rate of general inflation since 1980? Two and a half times sounds high to me. I think I looked it up in health care rate, health care costs have about doubled core inflation going back to the 70s, actually. So a double would not be two and a half times. It might be two times, though. But I mean it's still a little bit more than a lot of people.

SPEAKER_04 26:07

Well, the reality is they're going up. I mean, health care costs are rising.

SPEAKER_03 26:11

They've gone up much faster than other things, yes. That's true.

SPEAKER_04 26:17

I'm the I don't know if it's two or two and a half, but Okay. It's it's a big number, and I get what we're okay, I get where he's going, but okay, go ahead.

SPEAKER_03 26:26

Well, and then the question What do you think would be the fairest way to fix that problem with the minimum impact to overall Medicare Social Security revenue? Uh use Medicare B increase as a percentage of east person's Social Security entitlement, thus providing a greater premium increase for a person receiving a larger Social Security check. He calls that the German system. I'm not aware of how they do this in Germany. This sounds kind of like something Congress should take up.

SPEAKER_04 26:51

I mean, I think This is a really political question. This is a political landmine. I mean, really built into this question is is is a system that even Congress is afraid to dabble with, dabble in.

SPEAKER_03 27:08

Because it's that's not saying anything. Even Congress? I mean, what's the difference? It's rife with potential decision on anything.

SPEAKER_04 27:14

It's rife with potential political baggage. Yeah. Okay. I mean You want my answer? Yeah, I guess they do, so go right ahead. Get rid of all the flipping insurance companies and make it more of a direct pay process.

SPEAKER_03 27:28

I think we just mentioned that in the previous part of the program.

SPEAKER_04 27:31

I I do. I mean, really, what is the insurance companies because they have to profit in the middle. Health, we're talking about health insurance now. They cannot, they cannot provide any decrease in cost. They say they make it more efficient. I disagree. They make it more costly because there's somebody in the middle who has to stand between you and your doctor. And maybe we should have some sort of a catastrophic system where policies are only, you know, if you if you get over a certain percentage of your income, that's when the policy kicks in and you pay for everything else. I don't know what the perfect solution is. Some people will say it's a single payer system. Some people will say, you know, it's a system like uh like the British system or the Canadian system. And then you get others like my wife who say, Yeah, but all these people are coming down from Canada because they can't get surgery for whatever. Um there are arguments that are.

SPEAKER_03 28:26

Nobody can come from Canada now. So you're the Well, they still can come.

SPEAKER_04 28:29

They just they have to, you know, pay the Trump tariff. Importing Canadians now cost 50%.

SPEAKER_03 28:36

Two and a half times. Yeah. Uh yeah, and why I answered all this? I don't know. I I literally don't know. I'd have to spend more time.

SPEAKER_04 28:42

See, because Tom really does walk the political tightrope incredibly well. He does not want to step off one side or the other. He just doesn't want to take a chance of falling. There may not be a debt.

unknown 28:53

Trevor Burrus, Jr.

SPEAKER_03 28:54

Unlikely there is. The other part is I'm still one of the lucky few that has employer I'm still in an employer plan.

SPEAKER_04 29:02

Yeah, but you know, you st you saw how much our employer plan went up last year. It was huge. It's gonna go up again next year.

SPEAKER_03 29:08

I think I think I'm paying twelve hundred dollars a month right now out of pocket. I mean, that does not include, you know, when somebody goes and gets something done.

SPEAKER_04 29:17

Five years ago, that's what I was paying for a private policy. Right, yeah, but not a business policy.

SPEAKER_03 29:22

Right. So it's it's expensive, but uh all right. Can we do one more? Got time for one more? Okay. Uh, because Seth from South Lake Texas.

SPEAKER_04 29:30

It's gonna be a long episode, but

TIPS And Inflation Protection

SPEAKER_04 29:31

go ahead.

SPEAKER_03 29:31

Okay. Seth from South Lake, Texas wrote, Hi, Don and Tom, thanks so much for all you do. I saw the latest TIPS auction, Treasury Inflation Protected Securities, resulted in a 3% real yield to maturity, and it's the highest it's been in almost 25 years. I'm more familiar with I bonds as they're a lot easier to understand. I know that tips shouldn't be held in a regular brokerage account because they're tax inefficient. Aside from that, what are the benefits and risks of buying individual treasury inflation protected securities? Now, tips are designed to give you protection from inflation because at the most basic level, they readjust the price every six months based on unexpected inflation. Does that sound a little confusing?

SPEAKER_04 30:22

It's it is it's and by the way, the the it's the intermediate it depends on the maturity of your tips too. That three percent rate is for long-term tips.

SPEAKER_03 30:34

Ah, which I don't think you want to own, right?

SPEAKER_04 30:36

Intermediate term tips are about two and a half percent. Um and they they are not tax efficient. That's why they should not be in a taxable account. Um they they they have good, they have good and bad stuff. I mean, the the prices can be all over the place.

SPEAKER_03 30:56

They're they are very we expected them to do in 2020, 2021 when inflation soared, and I don't know that you got a whole lot of protection from them. We don't, as asset managers, use them, at least right now. You and I, we used to in our old portfolios back in the day at Vestry. Yeah, yeah. But then the more and more we looked at the bond market, it's like keep your maturities short and intermediate, don't take big risk, and it's worked out. I'll put it that way.

SPEAKER_04 31:24

And also one of the things that gets left out of this conversation is that if you have a portfolio that's all bonds, then yeah, you would need tips.

SPEAKER_03 31:32

Yeah.

SPEAKER_04 31:32

Or something like them to give you some inflation protection. Otherwise. But if you own a portfolio that's 60% stocks and 40% bonds, or 50% stocks and 50% bonds, stocks have the ability or and stock stocks have shown a tendency to increase with inflation because the companies that underlie those stocks can charge more for their products and services.

SPEAKER_03 31:56

Yeah. Or they make the product or service smaller and charge you the same.

SPEAKER_04 32:00

Right. Or yeah, they they do.

SPEAKER_03 32:02

I just got a bag of chips the other day that I swear it had like six chips in it. I was like, come on. You know those yummy pepperage farm cookies?

unknown 32:09

Yeah.

SPEAKER_04 32:09

You know the ones that are in those?

SPEAKER_03 32:11

Yeah, how many are left in those?

SPEAKER_04 32:12

Debbie got a couple of those that were BOGO at Publix. And so she got a couple of bags of these. They were the macadamia nut white chocolate ones, delicious, yeah. Which are delicious, delicious. Opened the thing up. It's a big bag, opened it up, yeah, and there are two layers, each with four cookies. Come on. And you could see big gaps at either end where the the fifth and the sixth cookie in each layer would have been filled it up with air. They took out two cookies per level, reducing the cookie count by 30%.

SPEAKER_03 32:47

Just think they're trying to help you, though, with your health. So 30% fewer cookies, which is what I need for sure.

SPEAKER_04 32:53

30% fewer, Don.

unknown 32:55

Exactly.

SPEAKER_03 32:55

Anyway, uh, so yes, companies, it turns out, can raise prices, and they've done that a lot in the last gosh, since 2019, prices are up dramatically. But um, and therefore, guess what? Stocks have made more, stocks' earnings are still good. That means prices are high. So all those things have helped you on the inflationary side. So there are nothing wrong with buying individual tips. You can do it, it's fine. So it's fine.

SPEAKER_04 33:23

No, nothing in the world wrong with them. Just lower your expectations. Oh, by the way, speaking of inflation, I did check, and it looks like the uh increase in medical is is at running about five to six percent a year on average. So about double inflation.

SPEAKER_03 33:41

I think inflation right now is still running at about four, but okay.

SPEAKER_04 33:43

So it's running in the threes. It's I just the I'll give you the latest CPA number.

SPEAKER_03 33:48

Is that core inflation? Is that core minus? Oh, yeah. See, that's the other thing.

SPEAKER_04 33:52

Is that core minus gas or whatever? Yeah, really inflation doesn't take into account health care costs.

SPEAKER_03 33:57

It's about four things left, I think, at this point. Chewing gum, haircut. I mean, I think I just saw the latest number.

SPEAKER_04 34:05

It was like three point All right.

SPEAKER_03 34:06

Well, I'll take your word for it, but it's I think it's debatable.

SPEAKER_04 34:10

Let's just whether it is actually that. Yeah. Who knows? When you look at gas prices, you go, Yeah.

SPEAKER_03 34:17

Well, thankfully I don't have to look at them often because uh I got the hybrid, so I don't have to pay much attention to that.

SPEAKER_04 34:22

Let's see. The current CPI, the regular U.S. CPI as of August 2026, was 3.4 percent. Okay.

SPEAKER_03 34:31

There you go.

SPEAKER_04 34:32

Excluding food and energy.

SPEAKER_03 34:34

Sure, why not?

SPEAKER_04 34:35

That's the core CPI.

SPEAKER_03 34:37

Oh, okay.

SPEAKER_04 34:38

2.4 percent. Okay. Food, 2.7, energy, 16.3.

SPEAKER_03 34:46

Stay at home more. That's what that's why nobody comes to the office anymore. I guess I just figured that out. You gotta drive here.

SPEAKER_04 34:52

We haven't come to the office since COVID, Tom.

SPEAKER_03 34:54

I know. They were here today because there's free breakfast.

SPEAKER_04 34:59

And the exciting Tom meeting.

SPEAKER_03 35:01

Exactly. All right, everybody.

SPEAKER_04 35:03

We're dear, we're dear, we're dear. We're dear in headlights. We're definitely deer in headlights right this very moment, and we're gonna go away because we can't talk anymore.

Free Advisor Help

SPEAKER_04 35:13

But you can send us questions at talkingreal money.com, and you can meet with a a lovely advisor like Tom or somebody else, if you'd prefer somebody else, just by going to talkingrealmoney.com and saying, I want to meet an advisor. You click on that button and you meet with an advisor, and guess what it costs? Nothing. Guess what kind of sales pitch you're gonna get? None. So give it a try. If you've got a complex problem, we'll give you some help. Give it to you for free. I mean, if you want to become a client, we're not gonna turn you away. Well, we might. Depends on your attitude. Uh, go to talkingrealmoney.com. Thanks for listening. Tell a friend or two, and we'll be back soon. Talking real money, you're gonna be a good idea.

SPEAKER_00 36:00

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