Advising my parents on annuity or other options

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Advising my parents on annuity or other options

Postby cloudboy55 » Sat Mar 23, 2013 5:14 pm

My parents have had an annuity in the past that apparently didn't have a lifetime benefit, and has been depleted. They have about 300K remaining in a TIRA. Mom is 75, and dad is 78. They are in fair health - dad has been treated for prostate cancer years ago and mom has diabetes that is managed with medication.

The investment advisor at their bank has offered them an immediate annuity with a death benefit - I'm not sure it it's adjusted for inflation or if it's a full or partial death benefit. Dad gets a modest 2k/month pension income from a Fortune 50 company, and they both have social security income as well.

Given that their spending and lifestyle is modest, my instincts tell me that an SPIA might not be necessary for them, and that they can probably cover their spending needs using only SS and pension income. I'll meet with them and their investment counselor next week to discuss this.

Under what circumstances would an SPIA make sense for them? Does anyone think I just need to leave this alone and let their advisor assist them as he sees fit?

-- cloudboy55
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Re: Advising my parents on annuity or other options

Postby Mel Lindauer » Sat Mar 23, 2013 5:31 pm

cloudboy55 wrote:My parents have had an annuity in the past that apparently didn't have a lifetime benefit, and has been depleted. They have about 300K remaining in a TIRA. Mom is 75, and dad is 78. They are in fair health - dad has been treated for prostate cancer years ago and mom has diabetes that is managed with medication.

The investment advisor at their bank has offered them an immediate annuity with a death benefit - I'm not sure it it's adjusted for inflation or if it's a full or partial death benefit. Dad gets a modest 2k/month pension income from a Fortune 50 company, and they both have social security income as well.

Given that their spending and lifestyle is modest, my instincts tell me that an SPIA might not be necessary for them, and that they can probably cover their spending needs using only SS and pension income. I'll meet with them and their investment counselor next week to discuss this.

Under what circumstances would an SPIA make sense for them? Does anyone think I just need to leave this alone and let their advisor assist them as he sees fit?

-- cloudboy55


Remember, the "investment advisor at the bank" is really an insurance salesperson who earns a commission on every sale, so he/she is certainly not going to provide unbiased information. It sounds as if your parents are doing fine without the annuity, so I'd leave well enough alone and ignore the sales pitch. There may come a time later, when inflation erodes the spending power of their pension income enough that they may need additioanl income to support their lifestyle. At that time, you might want to revisit the idea of a SPIA, but for now, it sounds as if they'd be better off without it.
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Re: Advising my parents on annuity or other options

Postby JW Nearly Retired » Sat Mar 23, 2013 8:50 pm

The investment advisor at their bank has offered them an immediate annuity with a death benefit - I'm not sure it it's adjusted for inflation or if it's a full or partial death benefit. Dad gets a modest 2k/month pension income from a Fortune 50 company, and they both have social security income as well.

Given that their spending and lifestyle is modest, my instincts tell me that an SPIA might not be necessary for them, and that they can probably cover their spending needs using only SS and pension income. I'll meet with them and their investment counselor next week to discuss this.

I think it would be wise to stop referring to the bank person as an "investment advisor" or "investment counselor". He/she is a saleman of bank products pure and simple. This person will try to sell them what the bank sells. If they don't need what the bank sells they will try to sell it to them anyway.
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Re: Advising my parents on annuity or other options

Postby donall » Sat Mar 23, 2013 9:50 pm

Yes, this happened to my mother. The bank investment advisor sold her a variable annuity that was not in her best interest. If they need an immediate annuity, it is best to shop around.
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Re: Advising my parents on annuity or other options

Postby rickmerrill » Sat Mar 23, 2013 11:33 pm

Oftentimes, there are few additional comments when someone knocks it out of the ballpark, JW has done just that.
If I am stupid I will pay.
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Re: Advising my parents on annuity or other options

Postby Sheepdog » Sat Mar 23, 2013 11:47 pm

Mel Lindauer wrote:

Remember, the "investment advisor at the bank" is really an insurance salesperson who earns a commission on every sale, so he/she is certainly not going to provide unbiased information. It sounds as if your parents are doing fine without the annuity, so I'd leave well enough alone and ignore the sales pitch. There may come a time later, when inflation erodes the spending power of their pension income enough that they may need additioanl income to support their lifestyle. At that time, you might want to revisit the idea of a SPIA, but for now, it sounds as if they'd be better off without it.

I am about their age. I agree with Mel completely. As he said, they can look into one at another date. Plus at another date, interest rates may be higher and they will be older, both of which would increase the SPIA payout.
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Re: Advising my parents on annuity or other options

Postby mephistophles » Sun Mar 24, 2013 12:18 am

Agree totally with Mel's advice. In recent years, many banks have hired life insurance salesmen and stockbrokers to sell "life insurance company products" and loaded mutual funds. These are not bank products. They are insurance company products and non-bank investment products. The banks give these agents and stockbrokers meaningless titles to hide their real identity and lend the banks credibility to make an easy sale. I wouldn't buy a wooden nickel from them.
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Re: Advising my parents on annuity or other options

Postby nedsaid » Sun Mar 24, 2013 1:47 am

Another thing to consider is the turnover of financial representatives in the banks. I have had friends that have worked in the financial services industry and I have heard stories that would curl your hair.

One bank that I am aware of sets sales goals that are difficult if not almost impossible to meet. The bonuses for acheiving the goals are not very big. The smart representatives figure this out and leave. So the mentality is that you reel in the customer into the boat, hit him over the head with a fishbat, and put the customer in the basket to be gutted and cleaned. There is no long term thinking. The representative your parents talk to a likely to be somewhere else in a year.

Some financial wizard has figured out that it is cheaper to abuse sales representatives and have the turnover than to actually reward performers. The economy is still crummy and people that need a job will put up with a lot. Sad but true. Someone figured that abused sales reps will generate sufficient sales until they burn out or are fired.

So why trust your parents finances to someone under incredible pressure to meet impossible goals? Nothing personal, your folks are just another fish to be caught, clubbed, and then gutted and cleaned.
A fool and his money are good for business.
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Re: Advising my parents on annuity or other options

Postby bertilak » Sun Mar 24, 2013 6:51 am

cloudboy55 wrote:My parents have had an annuity in the past that apparently didn't have a lifetime benefit, and has been depleted.

Does this mean that up until recently that now-expired annuity was providing them with part of their income? If so it MIGHT be reasonable to replace it. Someone needs to look at their overall situation -- expenses, income, portfolio -- to make an informed decision. But, as mentioned above, the bank's salesman may not be the right one to do that.

I think a CFP is what you need. Mike Piper's book "Can I Retire" points to a couple of websites to help find one:

http://www.cfp.net/utility/find-a-cfp-professional
http://apps.aicpa.org/credentialsrefweb ... hPage.aspx

If you accompany your parents to the bank and decide the bank's salesman is not qualified to advise, you could probably convince them that a second opinion is worthwhile.

Of course if they have been living on SS+Pension for some time now things could be OK as they are, unless inflation has caught up with them.
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Re: Advising my parents on annuity or other options

Postby JW Nearly Retired » Sun Mar 24, 2013 7:29 am

cloudboy55 wrote:
Given that their spending and lifestyle is modest, my instincts tell me that an SPIA might not be necessary for them, and that they can probably cover their spending needs using only SS and pension income. I'll meet with them and their investment counselor next week to discuss this.

Under what circumstances would an SPIA make sense for them? Does anyone think I just need to leave this alone and let their advisor assist them as he sees fit?
-- cloudboy55

It only makes sense if they really need/want more income than their SS/pension/IRAs RMD is giving them.

You should check out what various annuity choices will pay before you meet. See these links.... it will give you an idea what SPIAs with and without survivor benefits are costing/paying right now.
http://www.immediateannuities.com/
http://www.brkdirect.com/spia/EZQUOTE.ASP

Doubtful you will be able to make a direct comparison with what the bank insurance co. offers. They will be clever enough to make their policy highly complex to prevent just that.
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Re: Advising my parents on annuity or other options

Postby cloudboy55 » Sun Mar 24, 2013 11:26 am

bertilak wrote:
cloudboy55 wrote:My parents have had an annuity in the past that apparently didn't have a lifetime benefit, and has been depleted.

Does this mean that up until recently that now-expired annuity was providing them with part of their income? If so it MIGHT be reasonable to replace it. Someone needs to look at their overall situation -- expenses, income, portfolio -- to make an informed decision. But, as mentioned above, the bank's salesman may not be the right one to do that.

I think a CFP is what you need. Mike Piper's book "Can I Retire" points to a couple of websites to help find one:

http://www.cfp.net/utility/find-a-cfp-professional
http://apps.aicpa.org/credentialsrefweb ... hPage.aspx

If you accompany your parents to the bank and decide the bank's salesman is not qualified to advise, you could probably convince them that a second opinion is worthwhile.

Of course if they have been living on SS+Pension for some time now things could be OK as they are, unless inflation has caught up with them.



The most helpful response yet. Thank you.
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Re: Advising my parents on annuity or other options

Postby bertilak » Sun Mar 24, 2013 5:57 pm

cloudboy55 wrote:Thank you.

You are welcome. One additional thought: Just because they are taking an RMD doesn't mean they need to spend it. The right thing to do might be to reinvest it outside the IRA or use it towards an annuity.
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