Seeking Financial Advice for a Widow

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cjay22
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Seeking Financial Advice for a Widow

Post by cjay22 » Fri May 26, 2017 11:10 am

I’m helping a family friend settle her husband’s estate. I've always admired the thoughtful and prudent ideas shared on this site and was curious to get your opinion on the following:

A 70ish year-old widow has been left $165,000 ($45,000 of which is eligible to be transferred into a retirement account).

She is going to keep $22,000 in the bank and $18,000 in an emergency fund. That leaves $125,000 to be invested immediately.

She also has a $400,000+ home with an $80,000 mortgage that she plans to sell in the next year or so. From there, she might have an opportunity to move in with family, buy a new home for as little as $125,000 or she might rent, but there will most likely be another $175,000-$300,000ish to invest in the next year or two.

Her monthly income is $2,690 (from a pension and social security).

Her monthly expenses are $3,000.

Her financial goal (short-term and long-term) will be to make up her monthly income/expenses deficit. Currently, that is $310, but she would prefer to take $400 or $500 or $600 per month, if at all possible.

She met with a Financial Advisor (1% fee) who recommended the $125,000 (less $3,720 to cover 12 months living expense deficit) be invested in a CD ladder for the next year - until the house is sold, her new living arrangement is known and she knows exactly how much can be invested and how much her monthly expenses will be (and, therefor, what her monthly deficit will be) and then the FA will create an investment plan as appropriate for the long-term.

If this were your mother, how would you advise her? Follow the FA’s advice (whom she trusts)? Is waiting a year or two until her picture becomes more clear the correct move? Should she consider a Single Premium Immediate Annuity or something like a Vanguard Managed Payout Fund? Or, perhaps, something like a Betterment account? Is there a lazy portfolio should could set and forget that might meet her income needs? Anything else we should consider?

Thank you in advance.

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Meg77
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Re: Seeking Financial Advice for a Widow

Post by Meg77 » Fri May 26, 2017 1:58 pm

My first advice would be to pay of the mortgage with the non-retirement portion of the funds. That should immediately achieve her first goal which is to have her expenses less than her income. If/when she sells the house then you can decide what to do with the equity that results. Maybe there will have been a market correction by then and stock valuations will look more attractive. Or maybe she just keeps all the money in CDs for an emergency and lives on her fixed income. She can think about it for a year while getting the guaranteed (albeit likely low) return of whatever her mortgage rate is with $80K of the funds.

This plan has the added benefit of eliminating the need for any major/long-term investment decisions so that she can have awhile to grieve.
"An investment in knowledge pays the best interest." - Benjamin Franklin

NotWhoYouThink
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Re: Seeking Financial Advice for a Widow

Post by NotWhoYouThink » Fri May 26, 2017 2:06 pm

Did she have any savings before this inheritance? What is the interest rate on her mortgage? Will she need to spend any money getting the house ready to sell?

I wouldn't be so fast to pay off the mortgage. She may need the liquidity to make her move.

delamer
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Re: Seeking Financial Advice for a Widow

Post by delamer » Fri May 26, 2017 2:11 pm

The advisor's advice was good. Given the unknowns of her situation over the next year, not committing to any investments makes sense. Reevaluate once the house is sold and she knows what her future living situation will be.

Don't pay off the mortgage, if the $165,000 are her only liquid assets. Paying off the mortgage would cut her accessible funds in half.

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Re: Seeking Financial Advice for a Widow

Post by bsteiner » Fri May 26, 2017 2:15 pm

She's likely to be OK. If she nets $300,000 from the sale of the house, she'll have $425,000. If she buys a new home for $125,000, she'll have $300,000 left. Let's round that down to $250,000 in case she spends a little more for her new home, or she keeps some money in cash.

If she takes 4% a year, that's $10,000. That will cover her desired $600 a month ($7,200 a year), plus $2,500 a year for her 1% advisor.

If she skips the 1% advisor, and takes 4% a year, that will give her $833 a month. Or if takes the same $600 a month, that's $7,200 a year, or just under 3%, which is more conservative.

Since almost all of her expenses are covered by her pension and social security, she can pick any reasonable asset allocation. If she skips the 1% advisor, she has a greater choice of asset allocation, since her desired $600 a month becomes 3% rather than 4% of her assets.

The annuity will protect against her living too long and running out of money. However, it's inflexible, and there's some economic cost to it. Also, between her pension and social security, she already has almost all of her expenses covered.

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Re: Seeking Financial Advice for a Widow

Post by Levett » Fri May 26, 2017 2:18 pm

"I wouldn't be so fast to pay off the mortgage. She may need the liquidity to make her move."

I agree. There's not much liquidity there.

And I sure wouldn't put her money into an SPIA (completely locked up), or a Managed Payout Fund, or with Betterment.

In fact I think her FA has given her prudent advice.

Eventually, she will downsize and her cash flow will increase.

Lev

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Bogle_Feet
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Re: Seeking Financial Advice for a Widow

Post by Bogle_Feet » Sat May 27, 2017 3:37 am

cjay22 wrote:If this were your mother, how would you advise her? Follow the FA’s advice (whom she trusts)? Is waiting a year or two until her picture becomes more clear the correct move? Should she consider a Single Premium Immediate Annuity or something like a Vanguard Managed Payout Fund? Or, perhaps, something like a Betterment account? Is there a lazy portfolio should could set and forget that might meet her income needs? Anything else we should consider?
Immediate annuities are inferior financial products because they leave you in poverty later in life and heirs will get nothing if you reach your life expectancy.
Invest in a couple of index funds like BND and SPY through Ameritrade or Etrade. Investing is simple and easy. Not complicated, and doesn't have to be risky if you have enough on the bond side (BND). And stop paying 1% per year for an asset manager. That is throwing away money. You don't need to pay someone to hold and rebalance 2 index funds. With a 30 year time horizon (until death) one should be taking out no more than 4% per year. With a 20 year time horizon one should be taking out no more than between 5.1 and 5.5%.
http://investingadvicewatchdog.com/imme ... ities.html

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Re: Seeking Financial Advice for a Widow

Post by DaleMaley » Sat May 27, 2017 7:31 am

I helped my mother and mother-in-law after their husbands passed away. In the case of my mother, within a month of my father's death, we established a net worth statement.....and began contacting the 3 life insurance companies where he had policies. At the 3 month to 6 month point, I set up a long term financial plan with her, and we shift assets according to the long-term asset allocation plan.

In the case of my mother-in-law, again probably at the 1 month point after her husband's death, we established a net worth statement and long-term financial plan........and followed up with shifting the assets to match the plan.

In neither case, were any major long-term life changing events anticipated, except my mother selling the farm house within a couple of years and moving to town (which occurred at the 3-year point).

My only caution is to not move to fast. Human beings all take a different amount of time to cope with death. If significant life changes are anticipated, I would suggest just keeping the money in cash (CD's or money market) until the dust settles.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett

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dm200
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Re: Seeking Financial Advice for a Widow

Post by dm200 » Sat May 27, 2017 8:10 am

In general, I would not pay off the mortgage. She may need the liquidity.

I would also suggest a ladder of NCUA or FDIC backed CDs.

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Re: Seeking Financial Advice for a Widow

Post by Dottie57 » Sat May 27, 2017 9:04 am

I do think an SPIA might help especially after selling the house. 100k gets a payout of 550 or so. If you want cola, then the payout is less. Also f you start the SPIA later, the payout becomes bigger.

Remember, you can put part in SPIA and part in investments.

SPIAs are not evil. They provide an income floor for life.

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Re: Seeking Financial Advice for a Widow

Post by cjay22 » Wed May 31, 2017 1:24 pm

Thank you all for your thoughtful responses! This site and community are amazing, it’s difficult to put into words how much we appreciate your time and consideration.

To answer NotWhoYouThink’s questions:
1. The above snapshot includes her savings before inheritance - there is nothing else beyond the $165K liquid assets, the house, the pension and social security.
2. The interest rate on her mortgage is 3.75%.
3. She will not need to spend any money getting the house ready to sell.

Two additional notes (if it makes a difference): her monthly mortgage payment is $585 and her mortgage is actually $85,000 (not the $80,000 I wrote above - sorry).

We’re intrigued by Meg77’s advice to pay off the mortgage with the non-retirement portion of the funds. A $585 per month “return” on an $85,000 “investment” is very attractive here, especially when compared to a 1.2% annual return on a CD ladder. We actually can't see any downside.

Paying off the mortgage would leave her with a $12,000 bank account, $18,000 emergency fund and a $45,000 retirement account. Is that not enough liquidity/accessible funds until she sells the house in the next year or so. Since she’ll now have a $300 per month surplus after income and expenses, she plans not to use the bank, emergency and retirement accounts. In a real bind, wouldn't a home equity line of credit be a reasonable solution? If you continue to feel this is not prudent, would paying off a portion of the mortgage make sense and, if so, how much liquidity/accessible funds would you recommend?

Thank you again!

delamer
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Re: Seeking Financial Advice for a Widow

Post by delamer » Thu Jun 08, 2017 5:19 pm

cjay22 wrote:Thank you all for your thoughtful responses! This site and community are amazing, it’s difficult to put into words how much we appreciate your time and consideration.

To answer NotWhoYouThink’s questions:
1. The above snapshot includes her savings before inheritance - there is nothing else beyond the $165K liquid assets, the house, the pension and social security.
2. The interest rate on her mortgage is 3.75%.
3. She will not need to spend any money getting the house ready to sell.

Two additional notes (if it makes a difference): her monthly mortgage payment is $585 and her mortgage is actually $85,000 (not the $80,000 I wrote above - sorry).

We’re intrigued by Meg77’s advice to pay off the mortgage with the non-retirement portion of the funds. A $585 per month “return” on an $85,000 “investment” is very attractive here, especially when compared to a 1.2% annual return on a CD ladder. We actually can't see any downside.

Paying off the mortgage would leave her with a $12,000 bank account, $18,000 emergency fund and a $45,000 retirement account. Is that not enough liquidity/accessible funds until she sells the house in the next year or so. Since she’ll now have a $300 per month surplus after income and expenses, she plans not to use the bank, emergency and retirement accounts. In a real bind, wouldn't a home equity line of credit be a reasonable solution? If you continue to feel this is not prudent, would paying off a portion of the mortgage make sense and, if so, how much liquidity/accessible funds would you recommend?

Thank you again!
It seems unlikely that she would qualify for much of a HELOC based on her income, so I would not count on that as a backup should she have a financial emergency if she decides to pay off her mortgage.

In the event that her car needs replacing or she suddenly finds that she needs to a new roof (or both), she has to decide if she'd be comfortable with losing, say, one-third of her cash reserves if she has paid off the mortgage.

The other issue is that housing markets can change rapidly, and if interest rates rise or there is a recession in 6 months, her plan to sell in a year might not be possible (or at least not for the $400K price).

Her plan to pay off the mortgage is not unreasonable. But in the same situation, I'd value the liquidity more than the paid-off house.

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Re: Seeking Financial Advice for a Widow

Post by dbr » Thu Jun 08, 2017 5:42 pm

With a high fraction of her income already covered by a pension and SS, an SPIA makes no sense whatsoever. In fact the danger in this arrangement is that the pension is fixed rather than indexed for inflation. As time goes on she will have to rely on a faster than inflation increase in withdrawals from the portfolio. In any case she needs a reserve against increases in income needs with age. Part of the good news is that so little of her income is going to come from her portfolio that the 1% highway robbery of AUM actually does not penalize her prospects by very much.

I think a moderate Lifestyle fund such as Lifestrategy Conservative Growth or Lifestrategy Moderate Growth might be good choices. With so much of income already in pension and SS and some need to offset inflation I don't think the investments should be too conservative. I agree that doing nothing for a year and getting the living arrangement settled is very wise. I can't see how a person in this situation needs ongoing financial management at a 1% fee. What is timely is looking at POA and issues of assistance with end of life care, particularly as mental capability might decline, but I am not sure a 1% advisor is the person for this.

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Meg77
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Re: Seeking Financial Advice for a Widow

Post by Meg77 » Fri Jun 09, 2017 8:47 am

cjay22 wrote:Thank you all for your thoughtful responses! This site and community are amazing, it’s difficult to put into words how much we appreciate your time and consideration.

To answer NotWhoYouThink’s questions:
1. The above snapshot includes her savings before inheritance - there is nothing else beyond the $165K liquid assets, the house, the pension and social security.
2. The interest rate on her mortgage is 3.75%.
3. She will not need to spend any money getting the house ready to sell.

Two additional notes (if it makes a difference): her monthly mortgage payment is $585 and her mortgage is actually $85,000 (not the $80,000 I wrote above - sorry).

We’re intrigued by Meg77’s advice to pay off the mortgage with the non-retirement portion of the funds. A $585 per month “return” on an $85,000 “investment” is very attractive here, especially when compared to a 1.2% annual return on a CD ladder. We actually can't see any downside.

Paying off the mortgage would leave her with a $12,000 bank account, $18,000 emergency fund and a $45,000 retirement account. Is that not enough liquidity/accessible funds until she sells the house in the next year or so. Since she’ll now have a $300 per month surplus after income and expenses, she plans not to use the bank, emergency and retirement accounts. In a real bind, wouldn't a home equity line of credit be a reasonable solution? If you continue to feel this is not prudent, would paying off a portion of the mortgage make sense and, if so, how much liquidity/accessible funds would you recommend?

Thank you again!
I understand people's desire to keep high levels of liquidity, but the reason I advised paying off the mortgage was precisely because she'd still have a pretty good cash cushion leftover. And because it would achieve the primary stated goal of getting her expenses under her income level. As long as she has good health insurance coverage, it's hard to imagine an emergency so severe that it would drain all her cash - and if there was one she could tap retirement or just go ahead and sell the house to access more money.

That said, if she knows she wants to move, there is no reason to wait. It will just get harder as she gets older to make a big change like that - both physically and emotionally. But that is more of a personal decision. If she's comfortable on her current income and doesn't need the home equity, she doesn't have to move.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Seeking Financial Advice for a Widow

Post by nedsaid » Fri Jun 09, 2017 10:31 pm

Bogle_Feet wrote:
cjay22 wrote:If this were your mother, how would you advise her? Follow the FA’s advice (whom she trusts)? Is waiting a year or two until her picture becomes more clear the correct move? Should she consider a Single Premium Immediate Annuity or something like a Vanguard Managed Payout Fund? Or, perhaps, something like a Betterment account? Is there a lazy portfolio should could set and forget that might meet her income needs? Anything else we should consider?
Immediate annuities are inferior financial products because they leave you in poverty later in life and heirs will get nothing if you reach your life expectancy.
Invest in a couple of index funds like BND and SPY through Ameritrade or Etrade. Investing is simple and easy. Not complicated, and doesn't have to be risky if you have enough on the bond side (BND). And stop paying 1% per year for an asset manager. That is throwing away money. You don't need to pay someone to hold and rebalance 2 index funds. With a 30 year time horizon (until death) one should be taking out no more than 4% per year. With a 20 year time horizon one should be taking out no more than between 5.1 and 5.5%.
http://investingadvicewatchdog.com/imme ... ities.html
Single Premium Immediate Annuities are about the only annuities recommended on the forum. Consideration might be given to so called longevity insurance. All such products have drawbacks and are not for everyone but they are worthy of consideration particularly with the disappearance of the employer provided pension. They are only tools in a toolbox and not a "one size fits all" solution for all retirees.

In fact, academic research has shown that annuitizing a portion of a retiree nest egg in retirement lessens the odds of exhausting the portfolio in retirement. It also helps fill the void left by the disappearance of pensions. Sustainable withdrawals from a retiree nest egg are usually 3-4% of the balance each year. A single premium immediate annuity can stretch that to 5%, 6%, or even 7% depending on the level of interest rates and the age at which monies are annuitized. You can get a sustainably higher withdrawal rate with SPIAs because of mortality credits. In other words, the insurance company can afford to pay you more because of the people that die early. If one buys an annuity with part of the nest egg, it takes pressure off the remainder of the portfolio.

I just don't like the blanket condemnation of all annuities, even the SPIA's that are often recommended here. Everything has its good points and its drawbacks and these all need to be taken into consideration before making a decision. These blanket condemnations are not helpful in my opinion.
A fool and his money are good for business.

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celia
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Re: Seeking Financial Advice for a Widow

Post by celia » Sat Jun 10, 2017 3:52 am

cjay22 wrote:A 70ish year-old widow has been left $165,000 ($45,000 of which is eligible to be transferred into a retirement account).
I think the retirement account should be addressed first as this money has a different tax status. Did her late husband have a 401K, traditional IRA, Roth IRA or ??? Was he over age 70.5 so that he had started taking Required Minimum Distributions (RMDs)? Is she over age 70.5?

If the account is not a Roth, the distributions that she has to take will decrease her monthly shortfall, as RMDs based on a $45K account will start at $1,642 a year ($137/mo). Before she decides if she wants to withdraw more than the minimum, she need to know her tax bracket. If her husband died last year, she will now be filing as Single which gives her a much smaller tax bracket. So you need to consider that also.

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Re: Seeking Financial Advice for a Widow

Post by Bogle_Feet » Sat Jun 10, 2017 9:54 pm

nedsaid wrote: Single Premium Immediate Annuities are about the only annuities recommended on the forum. Consideration might be given to so called longevity insurance. All such products have drawbacks and are not for everyone but they are worthy of consideration particularly with the disappearance of the employer provided pension. They are only tools in a toolbox and not a "one size fits all" solution for all retirees.

In fact, academic research has shown that annuitizing a portion of a retiree nest egg in retirement lessens the odds of exhausting the portfolio in retirement. It also helps fill the void left by the disappearance of pensions. Sustainable withdrawals from a retiree nest egg are usually 3-4% of the balance each year. A single premium immediate annuity can stretch that to 5%, 6%, or even 7% depending on the level of interest rates and the age at which monies are annuitized. You can get a sustainably higher withdrawal rate with SPIAs because of mortality credits. In other words, the insurance company can afford to pay you more because of the people that die early. If one buys an annuity with part of the nest egg, it takes pressure off the remainder of the portfolio.

I just don't like the blanket condemnation of all annuities, even the SPIA's that are often recommended here. Everything has its good points and its drawbacks and these all need to be taken into consideration before making a decision. These blanket condemnations are not helpful in my opinion.
"Tool" is a word that insurance salesmen use to make people feel warm and fuzzy about annuities. That doesn't make them good investments. It's just a feel good word.
Historical data has shown that SPIA's leave you in poverty later in life compared to a low risk traditional mix of index funds. It's like deciding that taking a vacation at age 65 is more important than having food and shelter later in later. But SPIA's enrich insurance salesmen immediately. Yes you get a higher income rate... INITIALLY. But it stays fixed and there lies the problem with SPIA's.
The 4% rate allows you to increase withdrawals WITH inflation. You evaluate your withdrawal rate each year. Typically that 4% rate (the dollar amount) INCREASES each year until you much much more than surpass what the immediate annuity is still paying because the SPIA is fixed for life unfortunately. This is something that is never discussed with consumers when annuity salesmen sell these things.
https://www.youtube.com/watch?v=QDUbQeZvJ9g

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nedsaid
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Re: Seeking Financial Advice for a Widow

Post by nedsaid » Sat Jun 10, 2017 10:13 pm

Bogle_Feet wrote:
nedsaid wrote: Single Premium Immediate Annuities are about the only annuities recommended on the forum. Consideration might be given to so called longevity insurance. All such products have drawbacks and are not for everyone but they are worthy of consideration particularly with the disappearance of the employer provided pension. They are only tools in a toolbox and not a "one size fits all" solution for all retirees.

In fact, academic research has shown that annuitizing a portion of a retiree nest egg in retirement lessens the odds of exhausting the portfolio in retirement. It also helps fill the void left by the disappearance of pensions. Sustainable withdrawals from a retiree nest egg are usually 3-4% of the balance each year. A single premium immediate annuity can stretch that to 5%, 6%, or even 7% depending on the level of interest rates and the age at which monies are annuitized. You can get a sustainably higher withdrawal rate with SPIAs because of mortality credits. In other words, the insurance company can afford to pay you more because of the people that die early. If one buys an annuity with part of the nest egg, it takes pressure off the remainder of the portfolio.

I just don't like the blanket condemnation of all annuities, even the SPIA's that are often recommended here. Everything has its good points and its drawbacks and these all need to be taken into consideration before making a decision. These blanket condemnations are not helpful in my opinion.
"Tool" is a word that insurance salesmen use to make people feel warm and fuzzy about annuities. That doesn't make them good investments. It's just a feel good word.
Historical data has shown that SPIA's leave you in poverty later in life compared to a low risk traditional mix of index funds. It's like deciding that taking a vacation at age 65 is more important than having food and shelter later in later. But SPIA's enrich insurance salesmen immediately. Yes you get a higher income rate... INITIALLY. But it stays fixed and there lies the problem with SPIA's.
The 4% rate allows you to increase withdrawals WITH inflation. You evaluate your withdrawal rate each year. Typically that 4% rate (the dollar amount) INCREASES each year until you much much more than surpass what the immediate annuity is still paying because the SPIA is fixed for life unfortunately. This is something that is never discussed with consumers when annuity salesmen sell these things.
https://www.youtube.com/watch?v=QDUbQeZvJ9g
I am suspicious that you are the "Annuity Slayer" and that you are linking to your own videos to drive traffic.

I do not work in the financial industry and thus do not sell annuities or any insurance or investment products. As far as "tool in the toolbox", I have used this phrase in different contexts and to my memory have never heard an insurance salesman use this phrase. I use this phrase because there is the temptation to make even good financial products and/or techniques as the one size fits all solution. Every person's situation is different and what works for one person might not work for another.

You make the assertion that annuities make people poor later in life but hardly anyone here advocates putting 100% of a retirement nest egg into annuities. The possible exception would be an inflation adjusted annuity but there are pitfalls to those as well. The idea is that one annuitizes a portion of their nest egg and then has the remaining portfolio available to deal with inflation. In addition, it is often recommended to delay purchase until a person reaches their mid-seventies or even until their eighties. I have seen recommendations to buy Single Premium Immediate Annuities in stages. You are refuting an argument that no one here is making.

Another thing you are not addressing is the dreaded sequence of returns problem. If you are unfortunate to experience a 50% down bear market just before or just after you retire, sustained withdrawals after that can put too much strain on a portfolio and cause you to exhaust the portfolio prematurely. The annuity helps transfer the risk from the retiree to the insurance company.

Do you have any academic research, white papers, or studies to refer to? Or is your evidence these YouTube videos?
A fool and his money are good for business.

naha66
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Re: Seeking Financial Advice for a Widow

Post by naha66 » Sun Jun 11, 2017 1:39 am

nedsaid wrote:
Bogle_Feet wrote:
nedsaid wrote: Single Premium Immediate Annuities are about the only annuities recommended on the forum. Consideration might be given to so called longevity insurance. All such products have drawbacks and are not for everyone but they are worthy of consideration particularly with the disappearance of the employer provided pension. They are only tools in a toolbox and not a "one size fits all" solution for all retirees.

In fact, academic research has shown that annuitizing a portion of a retiree nest egg in retirement lessens the odds of exhausting the portfolio in retirement. It also helps fill the void left by the disappearance of pensions. Sustainable withdrawals from a retiree nest egg are usually 3-4% of the balance each year. A single premium immediate annuity can stretch that to 5%, 6%, or even 7% depending on the level of interest rates and the age at which monies are annuitized. You can get a sustainably higher withdrawal rate with SPIAs because of mortality credits. In other words, the insurance company can afford to pay you more because of the people that die early. If one buys an annuity with part of the nest egg, it takes pressure off the remainder of the portfolio.

I just don't like the blanket condemnation of all annuities, even the SPIA's that are often recommended here. Everything has its good points and its drawbacks and these all need to be taken into consideration before making a decision. These blanket condemnations are not helpful in my opinion.
"Tool" is a word that insurance salesmen use to make people feel warm and fuzzy about annuities. That doesn't make them good investments. It's just a feel good word.
Historical data has shown that SPIA's leave you in poverty later in life compared to a low risk traditional mix of index funds. It's like deciding that taking a vacation at age 65 is more important than having food and shelter later in later. But SPIA's enrich insurance salesmen immediately. Yes you get a higher income rate... INITIALLY. But it stays fixed and there lies the problem with SPIA's.
The 4% rate allows you to increase withdrawals WITH inflation. You evaluate your withdrawal rate each year. Typically that 4% rate (the dollar amount) INCREASES each year until you much much more than surpass what the immediate annuity is still paying because the SPIA is fixed for life unfortunately. This is something that is never discussed with consumers when annuity salesmen sell these things.
https://www.youtube.com/watch?v=QDUbQeZvJ9g
I am suspicious that you are the "Annuity Slayer" and that you are linking to your own videos to drive traffic.

I do not work in the financial industry and thus do not sell annuities or any insurance or investment products. As far as "tool in the toolbox", I have used this phrase in different contexts and to my memory have never heard an insurance salesman use this phrase. I use this phrase because there is the temptation to make even good financial products and/or techniques as the one size fits all solution. Every person's situation is different and what works for one person might not work for another.

You make the assertion that annuities make people poor later in life but hardly anyone here advocates putting 100% of a retirement nest egg into annuities. The possible exception would be an inflation adjusted annuity but there are pitfalls to those as well. The idea is that one annuitizes a portion of their nest egg and then has the remaining portfolio available to deal with inflation. In addition, it is often recommended to delay purchase until a person reaches their mid-seventies or even until their eighties. I have seen recommendations to buy Single Premium Immediate Annuities in stages. You are refuting an argument that no one here is making.

Another thing you are not addressing is the dreaded sequence of returns problem. If you are unfortunate to experience a 50% down bear market just before or just after you retire, sustained withdrawals after that can put too much strain on a portfolio and cause you to exhaust the portfolio prematurely. The annuity helps transfer the risk from the retiree to the insurance company.

Do you have any academic research, white papers, or studies to refer to? Or is your evidence these YouTube videos?
He pull's the same crap over at marketwatch, he goes by Joeymarket at MW.

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dm200
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Re: Seeking Financial Advice for a Widow

Post by dm200 » Sun Jun 11, 2017 8:30 am

Private employer defined benefit pensions, when they still exist, are the equivalent of a lifetime annuity with fixed monthly payments for life. Hardly a bad thing.

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nedsaid
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Joined: Fri Nov 23, 2012 12:33 pm

Re: Seeking Financial Advice for a Widow

Post by nedsaid » Sun Jun 11, 2017 9:26 am

dm200 wrote:Private employer defined benefit pensions, when they still exist, are the equivalent of a lifetime annuity with fixed monthly payments for life. Hardly a bad thing.
Bingo. The other thing I realized as I researched these issues was how expensive it really is to fund a pension and the large market risks involved. It even gets more expensive when you add in inflation protection. With the workplace savings plans like 401k's, 403b's, and 457's; the average person is expected to in effect be their own pension fund manager. I remember when my former employer took huge temporary losses in their cash balance retirement plan, they were invested 70% stocks. You can imagine what happened when the financial crisis hit, they froze the pension. The sequence of returns problem is not just a retiree problem, it hits pension plans too.
A fool and his money are good for business.

NotWhoYouThink
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Joined: Fri Dec 26, 2014 4:19 pm

Re: Seeking Financial Advice for a Widow

Post by NotWhoYouThink » Sun Jun 11, 2017 1:40 pm

I would have a slight preference for not paying off the house, since having more cash on hand may make buying the new house easier - maybe avoid a bridge loan, or at least have a smaller one. But either way, it doesn't really matter much. Whatever makes her feel better.

One consideration might be that having the house paid off and her income sufficient to meet her expenses without drawing on savings will take away a lot of the pressure to move in the first place. That might be good, or might be bad.

I agree with the FA that her non-retirement investments can stay in MM for now. Her retirement fund can go right into whatever balanced fund suits her risk tolerance, maybe 20-40% stocks, depending on how used she is to seeing account values fluctuate. Once she has moved she can re-evaluate her after-tax investments. Since her income will then be enough to meet her expenses, I don't see how an annuity would be helpful at that point.

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