Annuity for retirement

[azucena]

My mom is set to retire next year as she turns 66. She was a SAHM for years and got a late start on retirement. Her house is paid off and she will be taking soc sec. She's looking into pulling from my dad's record as they were married 20 yrs before divorcing, neither remarried. He passed away a few years ago. Several folks have told her she can get back payments to his date of death. Anyone know if that's true?

She has about $300k saved in an IRA, a variable annuity, a deferred annuity, and a small part in a Roth IRA. She's working with a new investment advisor and he wants to move most of the money into 'Fidelity Guarantee Flex Accumulator as a Qualified Annuity' and some into 'American Equity Income Shield'.

Her main goal is to preserve principal. She's been burnt by losing money in the stock market and doesn't trust it. Unbeknownst to me, she got into the current annuities via a different advisor years ago and has since lost some principal. She's very private about her money but has finally asked for my advice. I've always heard annuities cost too much. My actuarial knowledge is limited to life, I never crossed over into annuities. What say the wise folks of YMAM?

Here are the advisor's notes:
    The annuity will develop an average 4.5 – 5% interest per year. If needed we can obtain monthly distributions. The idea here is to place this into an account that will grow over time and provide 10 – 15 years of growth before retirement distribution.  will safeguard from existing stock market volatility. The basis of the annuity will follow a Fixed Index such as the Standard and Poors 500. There will be no fees, very few issues with market volatility with downside protection and growth for the next 5 to 10 years.

[MN-Investor]

Brokers just LOVE selling annuities because they make huge commissions from the sales.

Insurance companies are not going to do better than the S&P 500, so to think that they can guarantee that return while making a profit for themselves is a fairy tale.

Take a look at this article for more explanations of annuities - What You Need to Know About Annuities

[Deleted]

I found a pretty good explanation of the benefits she might be eligible for, mostly on pages 2 and 3.  I did not see anything specific on collecting past benefits www.ssa.gov/policy/docs/ssb/v67n4/67n4p1.pdf

[minnesotapaintlady]

I'm pretty convinced I'll put 20-30% of my savings into an SPIA eventually, but that is the only type of annuity I will consider and definitely would not annuitize all my retirement savings.  If she already has two annuities plus SS is that enough to cover her monthly expenses?  I so I wouldn't mess with another annuity.  Maybe just put a nice chunk of the IRA into CDs or treasuries?

[CCL]

"The idea here is to place this into an account that will grow over time and provide 10 – 15 years of growth before retirement distribution."

In 10-15 years she'll be 75-80. Why wait? She could draw some income from what she has already.

Agree with MPL, no need to put everything into annuities.

[nittanycheme]

I know I had a similar discussion with my mom a long time ago.  She was looking into an annuity because she also was pretty risk averse and wanted to make sure she had $$ to live on.  We discussed that she probably didn't want all of her money wrapped in an annuity just in case she needed some for a larger expenditure (car, house repairs, medical stuff, whatever).  She also was pretty wary of the stock market, although it is mostly because she just didn't really understand it.  She only  had enough money to even think about it because my grandmother passed and she came into some money from that.  Does your mom think she is going to get enough money coming in from her current annuities and SS to cover her expenses plus a little bit for whatever she finds fun?   If so, I would think that maybe she should look into just trying to get safe interest from her remaining cash if she is worried about that.   And he doesn't sound like he should her advisor.    Maybe she should look into a fee only planner - she doesn't seem like the type that is going to want to do a lot of trades so there isn't much point in active management.

Edit to add:  My mom did decide to purchase a small annuity that would supplement her SS as she only had her record and no real additional savings.  She passed before receiving any of it, and I got a payout of her principal plus some $.  I had to pay taxes on the extra, but not the principal. 

[MN-Investor]

Alternatives to consider, especially with today's interest rates - a CD ladder, or a TIPS ladder. A poster at the Bogleheads forum created a tool to help a person build a TIPS ladder - New tool for building a TIPS ladder

[tallguy]

May 2, 2023 11:24:31 GMT -5 azucena said:

My mom is set to retire next year as she turns 66. She was a SAHM for years and got a late start on retirement. Her house is paid off and she will be taking soc sec. She's looking into pulling from my dad's record as they were married 20 yrs before divorcing, neither remarried. He passed away a few years ago. Several folks have told her she can get back payments to his date of death. Anyone know if that's true?

She has about $300k saved in an IRA, a variable annuity, a deferred annuity, and a small part in a Roth IRA. She's working with a new investment advisor and he wants to move most of the money into 'Fidelity Guarantee Flex Accumulator as a Qualified Annuity' and some into 'American Equity Income Shield'.

Her main goal is to preserve principal. She's been burnt by losing money in the stock market and doesn't trust it. Unbeknownst to me, she got into the current annuities via a different advisor years ago and has since lost some principal. She's very private about her money but has finally asked for my advice. I've always heard annuities cost too much. My actuarial knowledge is limited to life, I never crossed over into annuities. What say the wise folks of YMAM?

Here are the advisor's notes:
    The annuity will develop an average 4.5 – 5% interest per year. If needed we can obtain monthly distributions. The idea here is to place this into an account that will grow over time and provide 10 – 15 years of growth before retirement distribution.  will safeguard from existing stock market volatility. The basis of the annuity will follow a Fixed Index such as the Standard and Poors 500. There will be no fees, very few issues with market volatility with downside protection and growth for the next 5 to 10 years.

No, survivor's benefits are payable from the date of application.  You cannot go back to the date of death and claim retroactive benefits for that period, although she could have filed at age 60 if she had chosen to back then.  The good thing is the payment amount works roughly the same way as claiming on your own record.  For every month you delay, the amount is increased.  The difference is that survivor's benefits max out at FRA rather than increasing to age 70.  If her FRA is 66 years and 8 months, her benefit amount will increase until then before maxing out.  It is up to her whether she wants to wait the extra months, but she cannot go back and collect for previous years. 

Additionally, survivor's benefits are unique in that there is no deemed filing requirement.  You can file for either survivor's or your own benefit and switch to the other at any time.  That is not the same as spousal benefits where you are deemed to be filing for all benefits to which you are eligible.  If she had worked regularly and earned a significant amount, it would be worth checking to see about filing for survivor's benefits and then switching to her own at 70 if they would be larger.  As it is, that doesn't seem likely for her but is worth making a note for anyone else reading. 

I've never been a fan of annuities.  There is probably a small percentage of people for whom they would be appropriate, but I would never advise someone to do it without a really good understanding of what they are getting into. 

[movingforward]

With the interest rates on CDs right now, I would go with a CD ladder.

[Rukh O'Rorke]

May 2, 2023 16:26:07 GMT -5 MN-Investor said:

Alternatives to consider, especially with today's interest rates - a CD ladder, or a TIPS ladder. A poster at the Bogleheads forum created a tool to help a person build a TIPS ladder - New tool for building a TIPS ladder

thanks! going to take a look at this.

When I did my taxes this year - I think I had to pay taxes on the TIPS interest payment, as wwell as the step up in value - MN do you know if that is true?

For azucena - If mom isn't going to need the money for day to day expenses, and willing to lock it up for a bit.....she could start putting it into ibonds. Aside from the first year and then the 3 month interest hold back, I think they are much more flexible than TIPS.

I LOVE the interest accruing without need to pay taxes on it. I can leave them there to accrue until I'm in a much lower tax bracket down the road.....it is nice to see them grow and never lose principal.

If all money in currently in the IRA, she could use new money for Ibonds this year and next before retiring, and then see how much she can take from the ira at the lowest tax brackets to fund the ibond purchases.

I think for more nuanced advice, would need to know what her baseline and ideal yearly budgets are and how much she will get from soc sec and the existing annuities.

Also imporant - for the 2 annuities she currently has, are they inflation adjusted?

One question to ask her advisor - what is his compensation for her buying the annuity he suggests?

[MN-Investor]

May 3, 2023 13:45:12 GMT -5 Rukh O'Rorke said:

When I did my taxes this year - I think I had to pay taxes on the TIPS interest payment, as wwell as the step up in value - MN do you know if that is true?

It looks like you are right. This publication by the Department of the Treasury discusses the taxation of TIPs - Treasury Inflation-Protected Securities (TIPS)