Does MYGA fit for my parents...

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
bradpevans
Posts: 740
Joined: Sun Apr 08, 2018 1:09 pm

Does MYGA fit for my parents...

Post by bradpevans »

My parents live comfortably, and spend well below their income. Ages 79, 80

One stream of income is ~450/month from a pension and they just got notice of the *option* to lump sum.
The dollar amount is about 9.5 years of payments, and annuity sites suggest "lump is better than payments"

Typically they are still adding index fund purchases every month (~1,000/month)

But they don't want to add complexity to their finance nor do they want to take on much risk - but CDs pay so little.
So i'm looking for one or two parking places for the lump if they take it.

My two thoughts:
1) cash out --> lump into Index fund or mix of (index funds, bonds)

but was also considering
2) maybe half of it into a 5 year MYGA at 3.0x%, 25,000 -> 29,000 in four years, the rest to bank or index funds

But maybe there are better suggestions balance risk and also complexity
thanks
User avatar
retired@50
Posts: 6670
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Does MYGA fit for my parents...

Post by retired@50 »

bradpevans wrote: Tue Sep 14, 2021 10:52 am One stream of income is ~450/month from a pension and they just got notice of the *option* to lump sum.
The dollar amount is about 9.5 years of payments, and annuity sites suggest "lump is better than payments"
Before jumping at the lump sum...
Have you checked this site to compare options...
https://www.immediateannuities.com/

If I'm following your numbers, it appears the lump sum being offered is around $51,300.

One important question is, what happens to the income stream when one of them dies?

Who earned the pension, and what does the survivor get?

It ** could ** be that the payer is hoping to get out of paying this income stream, because the income stream has a higher value than the current lump sum.

Regards,
This is one person's opinion. Nothing more.
User avatar
Stinky
Posts: 8463
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Does MYGA fit for my parents...

Post by Stinky »

Who is making the offer to pay the lump sum? The entity paying the pension, or a third party like JG Wentworth?

If it is a third party, realize they need to make a handsome return on their investment. So it’s likely that your parents would be short changed.
It's a GREAT day to be alive! - Travis Tritt
tibbitts
Posts: 14834
Joined: Tue Feb 27, 2007 6:50 pm

Re: Does MYGA fit for my parents...

Post by tibbitts »

bradpevans wrote: Tue Sep 14, 2021 10:52 am My parents live comfortably, and spend well below their income. Ages 79, 80

One stream of income is ~450/month from a pension and they just got notice of the *option* to lump sum.
The dollar amount is about 9.5 years of payments, and annuity sites suggest "lump is better than payments"

Typically they are still adding index fund purchases every month (~1,000/month)

But they don't want to add complexity to their finance nor do they want to take on much risk - but CDs pay so little.
So i'm looking for one or two parking places for the lump if they take it.

My two thoughts:
1) cash out --> lump into Index fund or mix of (index funds, bonds)

but was also considering
2) maybe half of it into a 5 year MYGA at 3.0x%, 25,000 -> 29,000 in four years, the rest to bank or index funds

But maybe there are better suggestions balance risk and also complexity
thanks
You should state the assumptions you're entering into these "annuity sites." And you need to state what the other streams of income are that you imply exist. If the offer came from the payer of the pension, it's possible that they're deeming the lump sum payment to be the better deal for them, not you. A MYGA is like (maybe worse than) a CD in that it's a lot more work (maybe not by Boglehead standards, but by everyone else's) than just receiving a check every month.
bradinsky
Posts: 407
Joined: Sat Jul 21, 2018 6:32 am

Re: Does MYGA fit for my parents...

Post by bradinsky »

MYGAs are not difficult. A little paperwork up front & you’re good to go. Typically you can only access 10% of the principal each year after the first anniversary, so no monthly income stream, if needed.
Topic Author
bradpevans
Posts: 740
Joined: Sun Apr 08, 2018 1:09 pm

Re: Does MYGA fit for my parents...

Post by bradpevans »

retired@50 wrote: Tue Sep 14, 2021 10:59 am
bradpevans wrote: Tue Sep 14, 2021 10:52 am One stream of income is ~450/month from a pension and they just got notice of the *option* to lump sum.
The dollar amount is about 9.5 years of payments, and annuity sites suggest "lump is better than payments"
Before jumping at the lump sum...
Have you checked this site to compare options...
https://www.immediateannuities.com/

If I'm following your numbers, it appears the lump sum being offered is around $51,300.

One important question is, what happens to the income stream when one of them dies?

Who earned the pension, and what does the survivor get?

It ** could ** be that the payer is hoping to get out of paying this income stream, because the income stream has a higher value than the current lump sum.

Regards,
I should have noted - the pension is on my dad with 50% survivor benefit (and this reminds me i would need to enter at the link above. previously i had NOT included the survivor part.
Topic Author
bradpevans
Posts: 740
Joined: Sun Apr 08, 2018 1:09 pm

Re: Does MYGA fit for my parents...

Post by bradpevans »

tibbitts wrote: Tue Sep 14, 2021 11:36 am
bradpevans wrote: Tue Sep 14, 2021 10:52 am My parents live comfortably, and spend well below their income. Ages 79, 80

One stream of income is ~450/month from a pension and they just got notice of the *option* to lump sum.
The dollar amount is about 9.5 years of payments, and annuity sites suggest "lump is better than payments"

Typically they are still adding index fund purchases every month (~1,000/month)

But they don't want to add complexity to their finance nor do they want to take on much risk - but CDs pay so little.
So i'm looking for one or two parking places for the lump if they take it.

My two thoughts:
1) cash out --> lump into Index fund or mix of (index funds, bonds)

but was also considering
2) maybe half of it into a 5 year MYGA at 3.0x%, 25,000 -> 29,000 in four years, the rest to bank or index funds

But maybe there are better suggestions balance risk and also complexity
thanks
You should state the assumptions you're entering into these "annuity sites." And you need to state what the other streams of income are that you imply exist. If the offer came from the payer of the pension, it's possible that they're deeming the lump sum payment to be the better deal for them, not you. A MYGA is like (maybe worse than) a CD in that it's a lot more work (maybe not by Boglehead standards, but by everyone else's) than just receiving a check every month.
I hadn't considered that angle - that a 3rd party might come in. My parents have the paperwork, but i haven't seen it myself.

And yes the "simplicity" of checks showing up every month definitely has appeal, especially to my mom who does the finances.
Post Reply