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170K annuity for MIL, 77. Take 1650/10 yr, or 1150/10 yr + lifetime? Can lock @ 3%. Take 10/yrs, or 10 plus lifetime?

good health, no debt, house paid off

May 26, 2014 by Eric in  |  Flag
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Hello Eric,

More information is needed to provide a good answer. For example:

1) Your mother-in-law is in good health, but is their longevity in her family background? Does she have reason to believe she'll live well beyond life expectancy such that the lifetime payout would be most attractive?

2) How much social security does she currently receive? Does she also have a pension or other income stream? What other (non-annuitized) resources does she have that she could tap if needed?

3) What are her current spending needs? Does she anticipate that spending will fluctuate alot or just need to keep up with inflation?

4) What is she wanting to achieve by creating this annuitized income stream? Does she need to have a larger guaranteed income base (beyond social security and other sources) to cover more of her retirement expenses?

A good answer needs to consider a much broader context. Hope that helps.

Comment   |  Flag   |  May 26, 2014 from Clackamas, OR

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Eric, to be fair, I am not such a big fan of annuities. An annuity would make sense to me with only a portion of her assets, if she were really nervous with investing and she needs the assurity of a guaranteed income stream for life. And guarantees are based on the claims paying ability of the issuing company.

Keep in mind, things, and people’s perspectives change; she may think it is a great idea today, but 10 years is a long time; she may change her opinion in 3 years or 5 years. She would be stuck in a contract. I don’t recommend, unless it’s already been done, to tie up more than 50% of her assets for a historically low interest rate. I see interest rates rising in the coming years, and she will not be able to take advantage of that because she will be in an illiquid investment. She may or may not be able to keep up with inflation. For a 10 year period, I would look at it as guaranteeing her own money. For the lifetime payment, she would take 12.3 years just to get her principal out.

If you are already in an annuity, just make the best of it. If you are not yet in an annuity, I recommend your mother in law decide, with input from friends and family members without a vested interest, if an annuity will fulfill a real need. I would recommend you speak to another financial advisor, preferrably a CFP(R) in your area for a 2nd opinion

Comment   |  Flag   |  May 27, 2014 from Delray Beach, FL

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The real question that no one can answer is " how long is MIL going to live"? If we knew that then we could calculate the best option. Without that information we have to make assumptions based on other factors that May or may not be relevant.

Comment   |  Flag   |  May 26, 2014 from Medina, OH

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Another relevant question is, has she considered other options than simply annuitizing this money and giving the entire principal to an insurance company? Does she want to leave any to her heirs? History has shown that a properly diversified portfolio can obtain better results than most annuities while allowing the principal to remain and even the the ability to grow over time for an unexpected need for the Mother in Law or to leave to her kids.

Comment   |  Flag   |  May 27, 2014 from Malvern, PA

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Short answer: To avoid the risk of extreme longevity, go with the 10 year plus lifetime.

Better answer: meet with an advisor before you do anything and make sure you're doing this in the context of an overall plan.

Comment   |  Flag   |  May 27, 2014 from Canton, GA

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Assuming she already owns the annuity, then unless she is in poor health, it is better to take the lifetime payout so she can't outlive the income stream.

Comment   |  Flag   |  Jun 24, 2014 from Arvada, CO

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