Annuity for 28 Year Old Hippie

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mac808
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Annuity for 28 Year Old Hippie

Post by mac808 » Tue Aug 23, 2016 12:01 am

A friend's younger brother came to me for advice upon receiving a sizeable (mid six figures) financial inheritance. Suffice it to say that this young man fits the profile of someone who will blow through these funds within a couple years, at most. He has minimal income from part-time minimum wage jobs and has no ambition/desire to pursue a real career. My recommendation to him is going to be to spend 10% on fun purchases and then purchase a lifetime inflation adjusted annuity with the remaining 90%. I've never recommended an annuity before but I wouldn't trust this kid even with a fee-only advisor and a lazy portfolio. He is the type to fall for a new scam once a month. Two questions for the forum. One, is my gut instinct appropriate here? Two, where can I go to price out annuities for someone so young? I checked out a few sites often recommended here but none of them will quote for someone <40 years old. I'd like to get an idea of what he'll get before talking to him about it.

Longtermgrowth
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Re: Annuity for 28 Year Old Hippie

Post by Longtermgrowth » Tue Aug 23, 2016 1:04 am

Isn't there a 10% penalty on the payments from such an annuity bought by someone below the age of 59.5?

jalbert
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Re: Annuity for 28 Year Old Hippie

Post by jalbert » Tue Aug 23, 2016 2:50 am

I'm skeptical such an annuity would exist, and even if you can find one, it likely isn't going to be attractive. There aren't 60-year bonds available to an insurance company to match the liability, so the insurance company would have no choice but to pass the uncovered risk on to the annuitant in the form of a very low payout rate.

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Re: Annuity for 28 Year Old Hippie

Post by AlohaJoe » Tue Aug 23, 2016 3:11 am

jalbert wrote:There aren't 60-year bonds available to an insurance company to match the liability
There are certainly bonds of that length. In 1993 Walt Disney offered 100 year bonds. So has Coca-Cola. 50-year bonds are easy to find (here's an article from 2 years about them: https://www.ft.com/content/055571f6-f16 ... 144feabdc0).

Insurance companies don't use treasuries to match liabilities, from what I can tell.

Most of them don't seriously hedge inflation-adjusted annuities in any significant way (again, from what I've read) because it is such tiny part of their business. If inflation turns out to be significantly higher than expected, they just use profits from other lines of business to cover the gap.

Technicalities aside, I agree with you. Hard to imagine insurance companies having an offering like this. And even if they did, I doubt the monthly paycheck is going to very appealing to a 28-year old. According to immediateannuities.com, a $500,000 nominal annuity for a 40-year old man only gets you $21,000 a year.

Add in an inflation rider and knock another decade off the age and I'd be surprised if you could find one paying more than $15,000 a year.

mac808
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Re: Annuity for 28 Year Old Hippie

Post by mac808 » Tue Aug 23, 2016 3:38 am

Thanks for the feedback. Any thoughts on a better setup for a young kid like this? Trying to steer clear of an irrevocable trust due to the lack of anyone willing to be a non corporate trustee and the relatively low AUM.

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Re: Annuity for 28 Year Old Hippie

Post by AlohaJoe » Tue Aug 23, 2016 4:32 am

mac808 wrote:Thanks for the feedback. Any thoughts on a better setup for a young kid like this? Trying to steer clear of an irrevocable trust due to the lack of anyone willing to be a non corporate trustee and the relatively low AUM.
I don't really know what the fees are like for trusts. If the person is really as spendthrift as you suggest, it might still be worth it even with hefty fees. (Better to lose 20% to trust fees than 30% to something worse.)

Real estate is another traditional store of wealth that is harder for spendthrifts to access. He could buy a relatively expensive house and lock up a large fraction of the wealth that way. Or one or two apartments and try renting them out.

But I'd probably just give an advisor a shot. It seems like talking clients out of dumb ideas is part of an advisor's job.

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prudent
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Re: Annuity for 28 Year Old Hippie

Post by prudent » Tue Aug 23, 2016 5:21 am

Here's the rub IMHO. An annuity that starts paying now will have such a small monthly payment, it will be next to useless. An annuity that is deferred for many years has too many unknowns plus with current rates so low, it might not be a good time to lock in today for payments many years away.

I'd connect him to an advisor and let the guy do what he wants after that. If he blows it all, hey, it's his money. But the fact he has asked for guidance might indicate he'll not be stupid about it. It's a case where an advisor who charges AUM fees is worth it if he can keep the kid from squandering it all.

Gill
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Re: Annuity for 28 Year Old Hippie

Post by Gill » Tue Aug 23, 2016 5:23 am

Longtermgrowth wrote:Isn't there a 10% penalty on the payments from such an annuity bought by someone below the age of 59.5?
Where did that come from? There are no penalties involved with private immediate annuities.
Gill

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snackdog
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Re: Annuity for 28 Year Old Hippie

Post by snackdog » Tue Aug 23, 2016 5:45 am

Financially, the best solution is to invest it. If you want to help him keep his hands off it, set up a revocable trust to manage it and have someone else as trustee. Only trustee can change investments or withdrawal schedule.

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Watty
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Re: Annuity for 28 Year Old Hippie

Post by Watty » Tue Aug 23, 2016 5:53 am

A big problem with an annuity would be that the person might go out and get a bunch of debt which would need to be paid with future annuity payments.

It would not be right for every situation but one option would be to use part of the money for a modest condo for that person to live in. With a paid off condo they might be able to make ends meet with their limited income. I would suggest a condo instead of a house because most of the maintenance would be included in the condo fees.

They might want to have the condo owned by a trust to prevent them from getting loans against it. I would suggest that the condo fees and property taxes be paid out of the trust.

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Re: Annuity for 28 Year Old Hippie

Post by Valuethinker » Tue Aug 23, 2016 5:54 am

snackdog wrote:Financially, the best solution is to invest it. If you want to help him keep his hands off it, set up a revocable trust to manage it and have someone else as trustee. Only trustee can change investments or withdrawal schedule.
This has to be the way to go.

Re annuities such are used if, for example, a child is crippled in an accident and will need care for rest of life (or lacks mental capacity). Could one find out how that is done? I think the legal term is "structured settlement"?

The other big problem with annuities is the risk of the insurer going broke. I gather New York State has some laws about this (it was in a New York Times case, about 15-20 years ago, from memory in the NYT) and an insurance pool. But presumably not all states do.

Insuring someone for say another 72 years is a serious problem.

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Re: Annuity for 28 Year Old Hippie

Post by bsteiner » Tue Aug 23, 2016 8:03 am

There's a cost to the annuity -- the amount by which the purchase price exceeds the expected value of the payments. Annuities are also inflexible. He might want to consider a trust that he can revoke with the consent of the trustees (and perhaps can revoke without the consent of the trustees after a specified age).

If there are no individuals available to act as trustee(s), there are some banks and trust companies that will take a trust of this size. A corporate trustee will probably charge about 1% a year, and will invest in a reasonable way. The cost is comparable to the cost of the annuity, but the trust is more flexible.

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Re: Annuity for 28 Year Old Hippie

Post by ryman554 » Tue Aug 23, 2016 8:07 am

AlohaJoe wrote: Technicalities aside, I agree with you. Hard to imagine insurance companies having an offering like this. And even if they did, I doubt the monthly paycheck is going to very appealing to a 28-year old. According to immediateannuities.com, a $500,000 nominal annuity for a 40-year old man only gets you $21,000 a year.

Add in an inflation rider and knock another decade off the age and I'd be surprised if you could find one paying more than $15,000 a year.
Realize that this is a guy who has blown through odd jobs. Minimum wage type stuff.

Let me go with the minority here -- to him, $15,000 would be a *huge* sum of money per year. Could double his income and provide a safe floor to allow him to continue his pursuits. A safety net of sorts.

The goals of investing to make more money are laudable, but it comes from a desire to change behaviour that may not want to be changed at this time.

joebh
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Re: Annuity for 28 Year Old Hippie

Post by joebh » Tue Aug 23, 2016 8:28 am

Do 28 year old hippies really ask for financial advice? And more importantly, do they follow it?
Is the hippie asking for advice here? Or is it really your friend asking for advice on how to deal with his brother?

Before I'd ever advise anyone on anything, I'd need to understand their goals.
You have indicated a few things this hippie doesn't do, but you haven't indicated what he wants to do.

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Re: Annuity for 28 Year Old Hippie

Post by jjface » Tue Aug 23, 2016 8:59 am

I have only see online quotes that start annuities from age 35. Not sure if you can buy them any earlier but probably would have to go through a "finance professional". A quick quote for a 35 year old provided $10.5k inflation linked or $19.5k level. So expect it to be worse for a 28 year old. That is a long time to pay out for an insurance company. You are better off with the trust idea. A 3% withdrawal rate from a 60:40 mix would provide $15k so I would want to at least get around that. I'm surprised the one who left the money in the first place did not set up a trust knowing the characteristics of this person but I guess it happens a lot.

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BL
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Re: Annuity for 28 Year Old Hippie

Post by BL » Tue Aug 23, 2016 9:16 am

Is it the 28 yr old himself asking you for advice, or is it his brother? The brother probably can't tie up the money that belongs to his brother without establishing guardianship.

I am wondering if a Wellesley fund at Vanguard with income going to the young man would possibly be an option? It would kick off some income and so far has been a popular fund. The Balanced fund might be safer in the long run, as might a Life Strategy fund. If he is getting some regular income, might he possibly leave it alone?

Perhaps he could turn it over to Vanguard Personal Advisory Services so it would be all hands-off.

Local advisors might have a field day with him, and invest in all kinds of inappropriate "investments".

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Re: Annuity for 28 Year Old Hippie

Post by Longtermgrowth » Tue Aug 23, 2016 10:14 am

Gill wrote:
Longtermgrowth wrote:Isn't there a 10% penalty on the payments from such an annuity bought by someone below the age of 59.5?
Where did that come from? There are no penalties involved with private immediate annuities.
Gill
I was under the impression that the ten percent withdrawal penalty on gains for variable annuities also applied to the taxable portion of the payment from a SPIA while below 59.5 years old... I learn something new here all the time. It does make sense that the 10% penalty should only apply to tax deferred gains.

Fidelity's Guaranteed Income Estimator gives me a quote for a random input of 5-5-1988, state of residence NY, $500,000 premium: $1,572 with no inflation adjustment or $946 with a 2% increase option.

TimDex
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Re: Annuity for 28 Year Old Hippie

Post by TimDex » Tue Aug 23, 2016 11:13 am

Spendthrift trust. Find a local bank with a trust department and ask them about it. Tim
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NotWhoYouThink
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Re: Annuity for 28 Year Old Hippie

Post by NotWhoYouThink » Tue Aug 23, 2016 11:29 am

What's wrong with blowing through the money in a year or two? Maybe he'll have fun.

Did your friend, the hippie's brother, also receive a similar inheritance? How does he plan to invest it? Maybe he could suggest a similar plan for his brother.

I hear suggestions for a trust, but don't see a good path to persuade the beneficiary to sign over his money. Maybe this is why I never could have had a career in sales. What's the sales pitch for getting a competent adult to hand over spending authority for his own money?

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Re: Annuity for 28 Year Old Hippie

Post by flyingbison » Tue Aug 23, 2016 12:03 pm

NotWhoYouThink wrote:What's wrong with blowing through the money in a year or two? Maybe he'll have fun.

Did your friend, the hippie's brother, also receive a similar inheritance? How does he plan to invest it? Maybe he could suggest a similar plan for his brother.

I hear suggestions for a trust, but don't see a good path to persuade the beneficiary to sign over his money. Maybe this is why I never could have had a career in sales. What's the sales pitch for getting a competent adult to hand over spending authority for his own money?
Exactly what I was thinking. Not my job to save anyone from himself.

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Re: Annuity for 28 Year Old Hippie

Post by Herekittykitty » Tue Aug 23, 2016 12:54 pm

I am familiar with a similar situation although the amount of the inheritance was more modest. The individual purchased a modest but well made house for cash in a nice safe neighborhood in which he had friends and in which he fit in with comfortably. This was years ago, and the test of time shows that in his case it was a good decision.

In the case of the "28 year old hippie" - he might consider finding such a house in such a neighborhood and buying it for cash with part of the money. I would likely avoid HOAs in his case, for one thing because that might keep him from renting out a room or two if he wanted to, and because the HOA idea of home maintenance might not be his way of doing it. I would get a modest house in good shape and go ahead and put money into making sure the roof, HVAC, plumbing, and so on were in good shape.

That would still leave the rest of the money to figure out what to do with, but at least it would get him into a home of his own.

Maybe the rest of the money might be invested to bring in a small amount of income, set to automatically deposit into a spending account for him. Maybe some kind of arrangement could be made to pay the property taxes out of the income. I don't know. Could he get a trustee to oversee that?
I don't know anything.

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Re: Annuity for 28 Year Old Hippie

Post by a1b2cowboy » Tue Aug 23, 2016 1:52 pm

I would consider using some of the funds to purchase a deferred income annuity (with 3% compound inflation rider) scheduled to begin payments when he is 50-55 years old. I feel confident that companies such as Mass Mutual or New York Life will still be around then. He can probably cobble together jobs to support himself for the next 20 years or so, but after the age 50-55, it might be much more difficult to do so. At least with a deferred income annuity he can be reasonably assured of a modest retirement income.

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Re: Annuity for 28 Year Old Hippie

Post by Stonebr » Tue Aug 23, 2016 2:58 pm

flyingbison wrote:
NotWhoYouThink wrote:What's wrong with blowing through the money in a year or two? Maybe he'll have fun.

Did your friend, the hippie's brother, also receive a similar inheritance? How does he plan to invest it? Maybe he could suggest a similar plan for his brother.

I hear suggestions for a trust, but don't see a good path to persuade the beneficiary to sign over his money. Maybe this is why I never could have had a career in sales. What's the sales pitch for getting a competent adult to hand over spending authority for his own money?
Exactly what I was thinking. Not my job to save anyone from himself.
+1 The "hippie" might have a lot of fun blowing through the money. Not everyone has to be a stuffed shirt like us.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

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Re: Annuity for 28 Year Old Hippie

Post by InvestorNewb » Tue Aug 23, 2016 3:02 pm

Stonebr wrote:
flyingbison wrote:
NotWhoYouThink wrote:What's wrong with blowing through the money in a year or two? Maybe he'll have fun.

Did your friend, the hippie's brother, also receive a similar inheritance? How does he plan to invest it? Maybe he could suggest a similar plan for his brother.

I hear suggestions for a trust, but don't see a good path to persuade the beneficiary to sign over his money. Maybe this is why I never could have had a career in sales. What's the sales pitch for getting a competent adult to hand over spending authority for his own money?
Exactly what I was thinking. Not my job to save anyone from himself.
+1 The "hippie" might have a lot of fun blowing through the money. Not everyone has to be a stuffed shirt like us.
It's all fun and games until he's retired and poor.
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Re: Annuity for 28 Year Old Hippie

Post by InvestorNewb » Tue Aug 23, 2016 3:03 pm

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Wellfleet
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Re: Annuity for 28 Year Old Hippie

Post by Wellfleet » Tue Aug 23, 2016 3:24 pm

Herekittykitty wrote:I am familiar with a similar situation although the amount of the inheritance was more modest. The individual purchased a modest but well made house for cash in a nice safe neighborhood in which he had friends and in which he fit in with comfortably. This was years ago, and the test of time shows that in his case it was a good decision.
I second this. I know a lot of former hippies and it seems that many did well by buying property when they had money. He could buy a home that fits his lifestyle and interests: city, rural, land, etc.

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whatusername?
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Re: Annuity for 28 Year Old Hippie

Post by whatusername? » Tue Aug 23, 2016 3:48 pm

There is a lot of other advice in this thread that I think is worth looking at, but to answer your second question on where to find estimating tools, Fido's got one at: https://gie.fidelity.com/estimator/gie/ ... refann=061.

mss
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Re: Annuity for 28 Year Old Hippie

Post by mss » Tue Aug 23, 2016 5:44 pm

Another issue with an annuity in a situation like this, is that there are companies that will gladly buy your future annuity stream and give you a lump sum today, for a "small" fee. :greedy

http://www.fairfieldfunding.com/sell-an ... ayments-2/

jalbert
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Re: Annuity for 28 Year Old Hippie

Post by jalbert » Tue Aug 23, 2016 6:21 pm

There are certainly bonds of that length. In 1993 Walt Disney offered 100 year bonds. So has Coca-Cola. 50-year bonds are easy to find
I'll rephrase my position. There is not a sufficiently deep, liquid, and investable market in 50+ year bonds to support an insurance annuity product-- not even close.

sbaywriter
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Re: Annuity for 28 Year Old Hippie

Post by sbaywriter » Tue Aug 23, 2016 7:08 pm

Before he starts having fun:

Would suggest the first thing he should do is pay off any debts (credit cards, loans, friends, family) - now's his chance to have a clean slate and be absolutely debt free.

I like the suggestion of paying cash for a modest house but depends on area - in a HCOL area, mid 6 figures is not enough to buy. But if he has no career, maybe moving to a LCOL area is best anyhow.

If not a house, maybe cash toward some other physical asset that will have long term value such as reliable transportation?

Nice problem to have, anyhow.

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Re: Annuity for 28 Year Old Hippie

Post by inbox788 » Tue Aug 23, 2016 7:31 pm

jalbert wrote:I'm skeptical such an annuity would exist, and even if you can find one, it likely isn't going to be attractive. There aren't 60-year bonds available to an insurance company to match the liability, so the insurance company would have no choice but to pass the uncovered risk on to the annuitant in the form of a very low payout rate.
https://www.immediateannuities.com/info ... tep-1.html

A 40 year old male from Alaska may be able to get $3,700/month (next 3 $2991 to 3278) for life with $1M. That's actually more than I would have thought, but in the ballpark of a 4% SWR. It's an option, but there's a chance the the scam artists and the opportunistic businesses will be around to help cash in on these income streams, be it annuities or trust income.

There are those tv commercials trying to get people to cash out their structured settlements. I would assume there similar companies for these types of annuities and trusts we're talking about if you looked or they found you.

http://www.nolo.com/legal-encyclopedia/ ... nuity.html

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Re: Annuity for 28 Year Old Hippie

Post by jalbert » Tue Aug 23, 2016 9:08 pm

A 40 year old male from Alaska may be able to get $3,700/month (next 3 $2991 to 3278) for life with $1M.
The 28 year old fellow may be able to do that in 12 years.

finite_difference
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Re: Annuity for 28 Year Old Hippie

Post by finite_difference » Tue Aug 23, 2016 9:28 pm

Although slightly older than 28, but also still a "hippie" in many ways, I resent the title of this thread :twisted:.

I think buying a home could be a good idea. Or using the money for school or to pursue a desired skill, etc.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: Annuity for 28 Year Old Hippie

Post by Bogle_Feet » Tue Aug 23, 2016 10:40 pm

mac808 wrote:A friend's younger brother came to me for advice upon receiving a sizeable (mid six figures) financial inheritance. Suffice it to say that this young man fits the profile of someone who will blow through these funds within a couple years, at most. He has minimal income from part-time minimum wage jobs and has no ambition/desire to pursue a real career. My recommendation to him is going to be to spend 10% on fun purchases and then purchase a lifetime inflation adjusted annuity with the remaining 90%. I've never recommended an annuity before but I wouldn't trust this kid even with a fee-only advisor and a lazy portfolio. He is the type to fall for a new scam once a month. Two questions for the forum. One, is my gut instinct appropriate here? Two, where can I go to price out annuities for someone so young? I checked out a few sites often recommended here but none of them will quote for someone <40 years old. I'd like to get an idea of what he'll get before talking to him about it.
Then what he needs is financial education, such as the 4% rule (actually 3.3% for a really young person). http://www.investingadvicewatchdog.com/rules.html
If he's dumb as a box of rocks then I guess he would have to settle for paying about an extra 0.6% per year in fees with Vanguard's variable annuity (the least offensive of all annuities). He could save 0.6% by just investing in index funds. Also he'll get clobbered with ordinary income taxes after age 59 1/2. Annuities are actually a tax DISadvantage when it's all said and done.

After 30 years he will have lost 16.5% in annuity fees. He'll lose at least another 13% in extra taxes after just 20 years. Welcome the world of annuities!
Image

Longtermgrowth
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Re: Annuity for 28 Year Old Hippie

Post by Longtermgrowth » Wed Aug 24, 2016 12:33 am

It would be interesting to see what the payout would be on a SPIA like the one discussed in this thread in the mid 1980's. Looks like a 5 year CD paid as much as 12% around that time. I remember reading somewhere about insurance companies offering a lump sum to those that bought annuities in the 1980's in an attempt to stop the high monthly payments for life.

If we ever see interest rates like that again, I'll probably buy a SPIA earlier than planned myself.

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Re: Annuity for 28 Year Old Hippie

Post by pascalwager » Wed Aug 24, 2016 12:56 am

Bogle_Feet wrote:
mac808 wrote:A friend's younger brother came to me for advice upon receiving a sizeable (mid six figures) financial inheritance. Suffice it to say that this young man fits the profile of someone who will blow through these funds within a couple years, at most. He has minimal income from part-time minimum wage jobs and has no ambition/desire to pursue a real career. My recommendation to him is going to be to spend 10% on fun purchases and then purchase a lifetime inflation adjusted annuity with the remaining 90%. I've never recommended an annuity before but I wouldn't trust this kid even with a fee-only advisor and a lazy portfolio. He is the type to fall for a new scam once a month. Two questions for the forum. One, is my gut instinct appropriate here? Two, where can I go to price out annuities for someone so young? I checked out a few sites often recommended here but none of them will quote for someone <40 years old. I'd like to get an idea of what he'll get before talking to him about it.
Then what he needs is financial education, such as the 4% rule (actually 3.3% for a really young person). http://www.investingadvicewatchdog.com/rules.html
If he's dumb as a box of rocks then I guess he would have to settle for paying about an extra 0.6% per year in fees with Vanguard's variable annuity (the least offensive of all annuities). He could save 0.6% by just investing in index funds. Also he'll get clobbered with ordinary income taxes after age 59 1/2. Annuities are actually a tax DISadvantage when it's all said and done.

After 30 years he will have lost 16.5% in annuity fees. He'll lose at least another 13% in extra taxes after just 20 years. Welcome the world of annuities!
Image

Last time I checked, the Vanguard VA fees were more like 0.35%, not 0.6%.

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Re: Annuity for 28 Year Old Hippie

Post by NotWhoYouThink » Wed Aug 24, 2016 6:51 am

I hope the OP will let us know how the conversation goes. The idea of buying a modest house sounds pretty good, but it will really all depend on what the beneficiary wants to do with the money. Locking all or most of it up until he is old might not be it.

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Re: Annuity for 28 Year Old Hippie

Post by FireProof » Wed Aug 24, 2016 7:11 am

You have a strange idea of hippies - they aren't particularly renowned for their expensive lifestyles!

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Re: Annuity for 28 Year Old Hippie

Post by Swimmer » Wed Aug 24, 2016 5:44 pm

mac808 wrote:A friend's younger brother came to me for advice upon receiving a sizeable (mid six figures) financial inheritance. Suffice it to say that this young man fits the profile of someone who will blow through these funds within a couple years, at most. He has minimal income from part-time minimum wage jobs and has no ambition/desire to pursue a real career. My recommendation to him is going to be to spend 10% on fun purchases and then purchase a lifetime inflation adjusted annuity with the remaining 90%. I've never recommended an annuity before but I wouldn't trust this kid even with a fee-only advisor and a lazy portfolio. He is the type to fall for a new scam once a month. Two questions for the forum. One, is my gut instinct appropriate here? Two, where can I go to price out annuities for someone so young? I checked out a few sites often recommended here but none of them will quote for someone <40 years old. I'd like to get an idea of what he'll get before talking to him about it.

First, I think it's a positive sign that he, obviously, recognizes his need for financial advice. I think it's cool that he reached out for help. Secondly, I don't consider a 28 year old a "kid." Why do you think he's a hippie? Not to be flippant, but to me it sounds like he may honestly be trying to learn how to handle money. It's not too late. :wink:

He must respect you a lot. It can't be easy for someone with a spendthrift history to decide he wants to change his ways. He must be grateful for the windfall and want to handle it prudently. Would he be willing to sit down with you to learn some basics of investing and how money grows? Perhaps you can recommend a book to develop his interest. This would be a rewarding project for both of you.

I would advise him not to touch it until he has learned some basics--from you and independent research. I wouldn't necessarily encourage the 10% "fun"money. He could spend what could be a sizable sum on something that would generate even more foolish spending--think boat, sports car, etc. I admire you for your efforts to help him. Teach him to fish. Namaste.

mac808
Posts: 457
Joined: Mon Sep 19, 2011 8:45 pm

Re: Annuity for 28 Year Old Hippie

Post by mac808 » Thu Aug 25, 2016 1:48 pm

Thanks to all for the input. I'm talking to him next week and will recommend a fee-only advisor and a 4% SWR presumably in a 70/30 ish lazy portfolio. He wants at least some cash flow now so can't totally set it and forget about it for 40 years. I was asked for advice directly but more along the lines of whether I knew any hot stocks to invest in, so I'm not sure how the lazy portfolio advice will be received. The idea of real estate would be perfect but unfortunately he grew up in NYC where prices are prohibitive and is now somewhat itinerant and doesn't have a location in mind where he'd want to settle down. This kid is my business partner's brother and very sweet but very naive. His brother and I have saved him from two obvious scams (think Nigerian prince) in the last 3 months already, but neither of us want this continuing responsibility going forward. My hope is that I can find a fee-only planner who won't mind charging an hourly fee in return for providing this part financial part psychological service!

Longtermgrowth
Posts: 524
Joined: Thu Nov 26, 2015 1:59 pm

Re: Annuity for 28 Year Old Hippie

Post by Longtermgrowth » Thu Aug 25, 2016 2:54 pm

If he's almost gone for scams like you mention, the recommendations for Vanguard's personal advisory service might be best. Simply going through an advisor before making portfolio changes/withdrawals should help keep him from making a costly mistake.

Since he needs income now, maybe directing all interest and dividends to his checking account so he's not tempted to withdrawal beyond that would work.
What's everything combined yielding right now that Vanguard's PAS would likely put him in, 2%? Assuming 500k, does an average of about 800 a month come close to his expected distributions? If he wants more around 3%, I'm guessing the PAS could set up automatic selling of whatever is best to sell and deposit the extra needed into his account...

As mentioned above, at his age, the safe withdrawal rate might be closer to 3%.

mac808
Posts: 457
Joined: Mon Sep 19, 2011 8:45 pm

Re: Annuity for 28 Year Old Hippie

Post by mac808 » Thu Aug 25, 2016 11:18 pm

I might recommend going for something like DVY over total index so that he can pull out closer to 4% in dividend income, recognizing that he'll be sacrificing higher total return over time. I think a true SWR at his age is likely around 2.5% but that may simply be too low for him to tolerate and he could reject the entire plan as a result.

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