Purchasing annuity for wife

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dave1054
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Purchasing annuity for wife

Post by dave1054 » Wed Sep 05, 2018 3:38 pm

I have done very well over the years and nearing retirement. My wife has zero interest in our investments and I am concerned what will happen if I suddenly die. I thought about moving all our assets to Vanguard Personal Advisory Service but the fees seem excessive on 7 figure portfolio that I feel I will do similar index investments like PAS.

I have always been opposed to annuities due to fees and complexity of investment. However, what do you think if I use a portion of our assets to purchase annuity for her with a highly regarded national insurance company? Any other “no brainer” alternatives for her?

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Sandtrap
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Re: Purchasing annuity for wife

Post by Sandtrap » Wed Sep 05, 2018 3:42 pm

Helpful to compare SPIA rates.
Immediate Annuities.com
https://www.immediateannuities.com/a/an ... gKN9_D_BwE

NotWhoYouThink
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Re: Purchasing annuity for wife

Post by NotWhoYouThink » Wed Sep 05, 2018 3:57 pm

How old are you? How old is she? Are there pensions? SS? Heirs?

What kind of annuity are you talking about?

If the two of you need income now, and are 75 or older, you might consider a SPIA. Otherwise, there are probably better options.

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Sheepdog
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Re: Purchasing annuity for wife

Post by Sheepdog » Wed Sep 05, 2018 4:20 pm

I understand you. My wife does nothing with investing. Everything is written down to help her. Earlier this year on this jags4186 thread viewtopic.php?f=2&t=222620&start=50
I made a comment last year on this thread where I wrote that my wife does not use a computer or smart phone.....not even a cell phone :annoyed. I have written every thing about our investments and other financial things and I review it all regularly. She knows where everything is, when automatic withdrawals to and from checking are transacted, when bills are due and where everything is and knows how to get to them....if she can get to them. So, I had her do one more thing.
I had her do that one thing last month to make it much easier for her to get to our Vanguard accounts (hers, mine and joint) if I became unable to do anything. She has never contacted Vanguard, never...... I finally convinced her to call Vanguard (while I was on the phone with her) to have a Vanguard agent reassure her (and me) that she can get to our accounts by telephone and make transactions all by telephone, and will not have to use a computer. That, finally, is set up. She has her voice recognition applied (At Vanguard my voice is my password.). She knows how to take care of Vanguard assets when I die...(The agent explained to her how to do it. I knew, of course, but she now does as directed by the agent.) It took decades to get her to make that call. I feel much better.
As other have mentioned, I purchased 3 SPIAs a few years ago, but all fixed terms rather than life SPIAs. (I am 85 and she is 78) These are working fine for their purpose which is to provide some automatic "income" to our checking account to go along with our Social Security and If I were to pass this year, she has these automatic ones coming in for some time, at which time she may change. When the fixed terms have matured, I (and she with help from a son, I think) plan on buying another fixed term SPIA. I know a life SPIA is better for most, but I like these fixed terms for my purpose.
Last edited by Sheepdog on Wed Sep 05, 2018 4:24 pm, edited 1 time in total.
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KlingKlang
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Re: Purchasing annuity for wife

Post by KlingKlang » Wed Sep 05, 2018 4:23 pm

Another option might be a life insurance policy on you that converts into an annuity for her if you die before her.

In any case there still needs to be a plan in place to handle the remainder of your after tax and retirement assets. I don't know if you can contract with a financial advisor to step in only in the event that you die or become incapacitated.

delamer
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Re: Purchasing annuity for wife

Post by delamer » Wed Sep 05, 2018 4:28 pm

What about providing instructions for your wife to engage the Vanguard service if you predecease her?

You won’t pay fees while you can still manage your portfolio but will have a backstop for her.

I’d be hesitant to sacrifice liquidity now to avoid a possible 0.3% annual fee in the future.

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Mel Lindauer
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Re: Purchasing annuity for wife

Post by Mel Lindauer » Wed Sep 05, 2018 4:29 pm

May we assume that you're talking about a Single Premium Immediate Annuity (SPIA)? If so, that might be a reasonable move to make sure that she had a steady income stream without her having to worry about handling investments.

Keep in mind that if she's relatively young and has a long life expectancy, inflation will erode the spending power of the annuity payments, so you might want to adjust the initial annuity payments higher to factor that in.
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Nate79
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Re: Purchasing annuity for wife

Post by Nate79 » Wed Sep 05, 2018 4:30 pm

You are worried about the fees charged by Vanguard PAS (where she would have an actual human to talk to and will completely run the investments) and are considering annuities?

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Watty
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Re: Purchasing annuity for wife

Post by Watty » Wed Sep 05, 2018 4:51 pm

Except for a few very special situations like complicated estate tax planning it is rare for any type of annuity other than a Single Premium Immediate Annuity (SPIA) to be a good choice because of the complexity and fees.

A SPIA is basically like buying a pension and they can have a good place in a retirement plan but I would only put a fraction of your assets into a SPIA.

Just for clarification I would assume that you are talking about a SPIA, please give some more details if you are thinking about something else.
dave1054 wrote:
Wed Sep 05, 2018 3:38 pm
Any other “no brainer” alternatives for her?
When I retired I put almost all my funds into a target date fund to make managing it easier for my wife if she needs to manage it someday. This is also to make it easier for me to manage if I am less financially capable as I age.

Basically the only decisions will be deciding how much I can spend each year, taking any required RMDs, and paying the taxes.

Target date funds are not very tax efficient but almost all my funds were in retirement accounts so that was not an issue for me.
dave1054 wrote:
Wed Sep 05, 2018 3:38 pm
I thought about moving all our assets to Vanguard Personal Advisory Service but the fees seem excessive on 7 figure portfolio that I feel I will do similar index investments like PAS.
One option would be to move all your investments to Vanguard and manage it yourself but leave clear instructions for her to have PAS take over if something happens to you. At that point their fees could be well worth the money.

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David Jay
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Re: Purchasing annuity for wife

Post by David Jay » Wed Sep 05, 2018 5:35 pm

dave1054 wrote:
Wed Sep 05, 2018 3:38 pm
Any other “no brainer” alternatives for her?
My wife is very capable but totally uninterested.

I intend to “spend down” our pre-tax money and hopefully leave her with just a [hopefully large] Roth, entirely in the LifeStrategy Moderate fund. She takes out what she wants (when she wants - no tax consequences on Roth withdrawals). What’s left over goes to the kids. QED
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Cyclesafe
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Re: Purchasing annuity for wife

Post by Cyclesafe » Wed Sep 05, 2018 6:00 pm

A joint life SPIA complementing social security to cover basic/recurring expenses is a no-brainer as long as the amount annuitized is not a significant percentage of total assets.

JoeRetire
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Re: Purchasing annuity for wife

Post by JoeRetire » Wed Sep 05, 2018 6:32 pm

dave1054 wrote:
Wed Sep 05, 2018 3:38 pm
My wife has zero interest in our investments and I am concerned what will happen if I suddenly die.

However, what do you think if I use a portion of our assets to purchase annuity for her with a highly regarded national insurance company?
I suspect you'll be unhappy with the cost of purchasing an annuity, otherwise it seems reasonable.

But if you use only a portion of your assets to purchase the annuity, what happens with the other portion? Will she manage it? Will someone else?

One of the reasons I use a financial adviser is planning for when I'm gone. Like your wife, my wife has zero interest in our investments as well. She's really not a numbers person. We both like and trust our adviser and the firm, and they will help her when the time comes.

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Watty
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Re: Purchasing annuity for wife

Post by Watty » Wed Sep 05, 2018 6:51 pm

Cyclesafe wrote:
Wed Sep 05, 2018 6:00 pm
A joint life SPIA complementing social security to cover basic/recurring expenses is a no-brainer as long as the amount annuitized is not a significant percentage of total assets.
You can also set your mutual funds to not reinvest the dividends.

The maximum annuity amount you would want would then be;

Income Desired - Social Security - Expected dividends= Maximum annuity to buy.

You will likely need to buy additional annuities as inflation decreases the value of your current annuity.

If you still have a mortgage I would look hard at paying that off so that you can buy a smaller annunity.

RickBoglehead
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Re: Purchasing annuity for wife

Post by RickBoglehead » Thu Sep 06, 2018 5:36 am

Simply write instructions that everything goes into Vanguard PAS at your death, describe the investments you want and how she should withdraw funds.

racy
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Re: Purchasing annuity for wife

Post by racy » Thu Sep 06, 2018 6:22 am

dave1054 wrote:
Wed Sep 05, 2018 3:38 pm
... I thought about moving all our assets to Vanguard Personal Advisory Service but the fees seem excessive....
I also think Vanguard's PAS service is a good option. The fees may "seem excessive" to you, but ... you'll be dead and won't care!

SGM
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Re: Purchasing annuity for wife

Post by SGM » Thu Sep 06, 2018 8:14 am

I will be buying a ladder of SPIAs form my wife starting after she reaches age 70. She has little interest in monitoring a portfolio. The payouts will be directly deposited into her checking account. We have also discussed using a Vanguard advisor. Hopefully our grown children will be able to help her with investments and then an advisor will not be necessary.

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Re: Purchasing annuity for wife

Post by Luke Duke » Thu Sep 06, 2018 9:27 am

Nate79 wrote:
Wed Sep 05, 2018 4:30 pm
You are worried about the fees charged by Vanguard PAS (where she would have an actual human to talk to and will completely run the investments) and are considering annuities?
This.

123
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Re: Purchasing annuity for wife

Post by 123 » Thu Sep 06, 2018 9:33 am

One option is to use a single fund-of-funds if you can find one that matches your desired asset allocation. We selected one of the Vanguard LifeStrategy funds.

LifeStrategy funds use investor rather than admiral shares. The extra cost of having a LifeStrategy fund over the component funds is about $1,000 per million a year, not too bad and cheaper than Vanguard PAS.
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Re: Purchasing annuity for wife

Post by pkcrafter » Thu Sep 06, 2018 9:47 am

dave, Vanguard's PAS is far less cost than what your wife might get into if she ends up going with an advisor she must choose on her own. A single premium immediate annuity is second possibility, but payments don't optimize until age about age 66. See immediate annuity link above.


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Re: Purchasing annuity for wife

Post by bikechuck » Thu Sep 06, 2018 2:30 pm

123 wrote:
Thu Sep 06, 2018 9:33 am
One option is to use a single fund-of-funds if you can find one that matches your desired asset allocation. We selected one of the Vanguard LifeStrategy funds.

LifeStrategy funds use investor rather than admiral shares. The extra cost of having a LifeStrategy fund over the component funds is about $1,000 per million a year, not too bad and cheaper than Vanguard PAS.
I like this approach except for one showstopper. The LifeStrategy funds have far more in international stocks and bonds than I would prefer.

standard7
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Re: Purchasing annuity for wife

Post by standard7 » Fri Sep 14, 2018 9:58 am

I was in a similar situation, I found myself wondering about what happens when I'm not here, and what kind of mess I may leave, both from a management standpoint and who do I trust to help. I was additionally motivated when someone we know lost her husband and shortly afterwards received a call from their broker about what to do with an individual stock that he didn't think was going to have a good quarter... :oops:

This is not the kind of call that I want anyone to deal with at that point especially if they aren't into tinkering with finances. So here's what we did.

My wife has a relatively small IRA but over the 50K minimum to be managed within the Vanguard Personal Advisor Services. So, we took this account and put it under PAS. It was incredibly simple, we arranged a call and defined our goals. It appears that the base AA falls into 5 categories: Very Conservative, Conservative, Moderate, Aggressive and Very Aggressive. Based upon the answers to our questions we fell into the Moderate tolerance but when we received the allocation/portfolio distribution we asked for a conservative AA for comparison and went with it. It was simple.

We made sure that all of our VG accounts had cross access for both of us so that we can see all of the accounts. Our rep also told us that even though the computer model choses from a few VG funds, he has the flexibility to add non-VG or products that we simply favor and don't want to give up. Obviously these products would not be re-balanced on a quarterly basis as are the products with their prescribed portfolio. One thing that I don't know is whether there are any other variables involved in the asset allocation and funds chosen, such as whether the fund choices remain the same as the amount under management grows or declines?

So for the simple task of putting one small portion of the current portfolio under PAS management we now have a plan. I like that the investment strategy is not reliant upon a brokers daily whim and the advisor doesn't work on commission. The portfolios are limited to a set of broad low-cost index funds. And hopefully VG will be around for a couple more years :happy

Moving forward this is how it works: I manage the bulk of the portfolio minus her IRA component as long as we want or as long as I am here. The small portion that is under PAS management only costs % 0.3. At the point that I am gone my wife simply asks for the remainder of the portfolio to move into her PAS account. I was told that VG has a "caring" and knowledgeable team that handles this situation of when a spouse dies. And since we have already aligned all of our accounts the process should be simple. With PAS in control all that should be remaining is to determine how much and where to send the distributions.

I'm sure there are plenty of ways to make this work. I liked this because it was easy, it's done, and we now have a plan.

ralph124cf
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Re: Purchasing annuity for wife

Post by ralph124cf » Fri Sep 14, 2018 12:41 pm

You have mentioned buying these for your wife. This can be done from your wife's 401(k) or IRA, or from after tax funds.

You CANNOT use your own 401(k) or IRA funds for this purpose. You can buy a joint and 100% survivor annuity with your tax sheltered funds, but not one with her as sole payee.

Ralph

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