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Help for my mother
Old 03-16-2017, 07:41 PM   #1
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Help for my mother

I am looking for some advice for my 59 year old mother who is looking to move out to New Mexico soon.

Unfortunately my my mother has been on disability for most of her life and as such has a fairly small amount of money to work with. She receives $1750 dollars a month in disability and has around $65000 dollars to work with.

She is a very risk averse person and has been in talks with her banker at Citi who suggested this AIG Variable Annuity with the Income Plus option. [mod edit - link removed]

She is honestly just looking for a little bit more security than what her benefits provide with as little risk as possible. She is not looking to make anything much on the money at all but would at least like to beat out inflation. I personally don't think the variable annuity is too hot, especially with those fees, but then again I am fairly ignorant when it comes to this type of stuff.

If anyone has any suggestions I'd love to listen. Thanks!
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Old 03-17-2017, 06:47 AM   #2
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Tough situation and your suspicions are valid.

Variable annuities are complex, very complex. One of the reasons for that is that the salesman can assume an aura of knowledge that is difficult to pierce until one has mastered the document itself. (And it is a rare salesman indeed who has actually put the time into the document--they just spiel from the rosy top line. This is particularly true for the level of salesman who is working with a "normal" person such as your mom, rather than someone with seven figures allocated to buying insurance.)

By the time the salesman gets his/her cut, and all the administrative fees that you mention are paid out (3.5 to nearly 7% on some of the AIG variable annuity products!), the product is [almost (?) always] suboptimal. Particularly given the relatively small sum that your mom has in her hands, the actual guaranteed payments on the annuity are not going to amount to much. (if you search the web for the particular AIG annuity you are dealing with, you may be able to find a good analysis of it at annuitygator, or even bogleheads....)

Typically, we'd have a debate here between a simple immediate annuity and a CD ladder for someone looking at safe income over the years. A big problem, however, is that she only has 65k. How much income does she expect to need? (And, is her disability payment adjusted for inflation?) Advantage of assembling a CD Ladder and just drawing down her savings is that if she unexpectedly needs a lump sum, she can get to it (albeit at the cost of future spending). She is starting with a mighty skinny pile though.

If your mom needs to maximize a regular pension-type income with minimal risk, under these particular facts, I think she should at least look at simple immediate annuities; right now, a 59 year old female in New Mexico can get $305 a month if she were to spend the entire 65K. (some inflation adjusted options exist, but they are pricey) Either Vanguard or immediateannuities.com (which gave me the 305 quote) are good places to look. The longer she waits on buying this, the better monthly payout she'll receive (aging helps, and we might get higher interest rates.) Look for high rated insurance companies--but with 65k to spend, she likely will be fully protected by her state of residency's insurance guaranty fund if the insurer goes under. Of course, if she goes this route, she loses access to her money (which for all intents and purposes is also true for the Variable annuity).

Hopefully, this will bump your post up and get the attention of someone who can present a counterpoint argument against going with a simple annuity here.
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Old 03-17-2017, 07:00 AM   #3
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I agree with 2017ish. Have your mother never talk to that scum at Citi again and then you can help her with the immediate annuity purchase.

You can also try using Abaris site, which provide more detail than immediateannuity and you are not obligated to talk to anyone unless you want to, https://www.myabaris.com/tools/online-annuity-quotes/

Good luck
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Old 03-17-2017, 08:16 AM   #4
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Thanks for confirming my suspicions and the helpful replies. Looking at the link that was removed from my post the fees end up being close to 4% which is definitely pretty bad.

Without getting in to details that are too personal there are some other factors that may help in choosing what to do with the money. My mother and father are still technically married and besides whatever his social security benefits will be, his pension and TSP through the federal government will be providing him with more than enough for him to live on. Theres no doubt in my mind that he would help my mom were she in a tight spot.

My mother, for a mix of reasons both valid and unfounded, would like to distance herself from him as much as she can and thats where she wants to use this $65000. She does have a small $10ishk that she wants to keep as a small buffer savings as well.

Like I said, she is fairly risk averse but theres also the caveat that she doesn't like the idea of not having access to the money so I think the prospect of a CD ladder could be a good idea rather than a simple annuity. Her disability receives a yearly COLA and she lives quiet meagerly. She does own a fairly new car (which has been paid off but still will need insurance) and will probably want internet and cell phone service out there. Besides this and the basic necessities she spends next nothing. Places she has looked at renting range from 450-750 dollars.

She definitely doesn't need to start collecting from this $65000 right away and honestly, with the way she lives, she might never need to except for emergencies. For this reason I was also thinking about talking to her about a bond heavy lazy portfolio?
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Old 03-17-2017, 09:06 AM   #5
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I agree with 2017ish.

I think it is fear, that drives your Mom to "hide" the 10K, instead of mentioning she has 75K cash. This makes the simple annuity even better ( 65K to annuity, and 10K in CDs for emergency).
I would shy away from all annuities if she is sickly with limited lifespan.

Regardless of what you do, remember if you don't do it yourself, then any "bank" person or other "helpful person" will charge her about 2% per year, which wipes out her earnings.

Instead of Bonds, you could look at a ladder of CDs (at online bank like Ally) as bond funds will go down as interest rates go up.
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Old 03-17-2017, 09:22 AM   #6
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Originally Posted by punchdrunk View Post
She is honestly just looking for a little bit more security than what her benefits provide with as little risk as possible. She is not looking to make anything much on the money at all but would at least like to beat out inflation.
I'll venture that that view covers most of us.
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Old 03-17-2017, 09:32 AM   #7
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IF your dad gets social (I don't know how public employees interface with that system, at all.), she can draw off his social when age appropriate (I assume no offsets for disability checks, another thing I know nothing about.). Also, depending upon her life expectancy, she would benefit from your father putting off drawing social for as long as feasible--as long as they stay married.

Mike Piper has a great, accessible book/pamphlet (100 pages or so?) on social security drawing strategies: "Social Security Made Simple," which is only $5 for the kindle version.
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Old 03-17-2017, 09:33 AM   #8
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...
I would shy away from all annuities if she is sickly with limited lifespan.

....
Definitely. I neglected to note this.
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Old 03-17-2017, 03:47 PM   #9
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I will look into social security with regards to her drawing off my fathers. He shouldn't have to withdraw from that for a long time.

She receives disability as a result of being schizohrenic which, as I understand, does decrease life expectancy considerably regardless of suicide or increased accident risk so maybe an annuity is not so great after all.

I will take a longer look into ladder CDs, thanks.
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Old 03-17-2017, 11:33 PM   #10
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Originally Posted by punchdrunk View Post
I will look into social security with regards to her drawing off my fathers. He shouldn't have to withdraw from that for a long time.

She receives disability as a result of being schizohrenic which, as I understand, does decrease life expectancy considerably regardless of suicide or increased accident risk so maybe an annuity is not so great after all.

I will take a longer look into ladder CDs, thanks.
One nice thing about an annuity is it would prevent her suddenly spending all her money on some perceived issue.
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Old 03-17-2017, 11:34 PM   #11
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I will look into social security with regards to her drawing off my fathers. He shouldn't have to withdraw from that for a long time.

She receives disability as a result of being schizohrenic which, as I understand, does decrease life expectancy considerably regardless of suicide or increased accident risk so maybe an annuity is not so great after all.

I will take a longer look into ladder CDs, thanks.
If they were married for 10 yrs or more, then she qualifies (I believe).
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Old 03-19-2017, 03:10 PM   #12
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In that part of the world she might be able to buy a decent mobile home incl the land for that 60k.

If the place is nice and is equivalent to what she would rent or better that she could consider the monthly savings as an immed annuity and it might even have a larger payout that the actual annuity.
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Old 03-19-2017, 03:31 PM   #13
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I would put the $65k into Wellesley Income Fund, a very conservative balanced fund, and the $10k into an online savings account.

If she could use some extra cashflow, you could set up an automatic redemption of $250/month, bringing her income to $2,000/month and the Wellesley account will still likely grow.

Whatever you do, stay the hell away from annuities, and especially variable annuities.
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Old 03-19-2017, 04:08 PM   #14
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If her husband has TSP he will need to pay out her interest in his retirement fund. DON"T let her sign her interest away out of some perceived injustice. My nephew had schizophrenia and died young (in his 40s) because he didn't like to use his breathing machine for sleep apnea, he didn't have good judgement.

If your Mom is receiving SSI you need to take the rules surrounding that into consideration. Here is where a good estate attorney specializing in disability law earns their ribbons. For example, if your mother could use that money to purchase a modest condo the value of her home would not be a factor in SSI. Your Mom may need a conservator which will put a stop to financial leaches.

My advice to you is to find a couple good lawyers near where she intends to live (you pay the fee) and for her to meet with them for life planning as many requirements are state specific.

Your Mother's needs are more complex than how to invest the $65T.
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Old 03-19-2017, 04:28 PM   #15
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Might consider IBonds... Current variable rate is 2.76%.

Depends on the guess about what the future holds for inflation.

Understanding how IBonds work is important. The safest part is that the return can never go below zero.

I Savings Bonds - I Bond Rates - Maturity Dates - I Bond Values - SavingsBonds.com
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Old 03-19-2017, 04:31 PM   #16
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If your father gets a pension and they were married over ten years, she should get a share of it! Talk to a lawyer!
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Old 03-19-2017, 04:58 PM   #17
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If your father gets a pension and they were married over ten years, she should get a share of it! Talk to a lawyer!
Not necessarily... the pension might be from an employer that the father started working for after their divorce... or many other scenarios where she might not be entitled to a share of his pension.

SS spousal benefits may apply if they were married long enough, but that was already mentioned
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Old 03-19-2017, 05:08 PM   #18
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Not necessarily... the pension might be from an employer that the father started working for after their divorce... or many other scenarios where she might not be entitled to a share of his pension.

SS spousal benefits may apply if they were married long enough, but that was already mentioned


But if the ten years or more of marriage was during the job where pension benefits were accrued, she should be entitled to up to half the pension depending on the length of the marriage and years he was accruing pension benefits during the marriage.
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Old 03-19-2017, 06:44 PM   #19
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Pension should have been settled at the time of a divorce.

Maybe I misread the OP's comment, the couple may be separated not divorced.

The OP's mother really must consult a lawyer. She may be on normal SS disability now but if her condition gets worse she would be a candidate for SSI. Planning now will preserve her options.
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Old 03-19-2017, 06:50 PM   #20
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He said "technically married" which is not divorced or indicative that a separation agreement has been reached giving him the entire pension. I think that pension would help her out.
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