Inflation-indexed SPIAs

[FIREd]

Quote:

Originally Posted by Texas Proud OK.... so suggest to her to get out to the golf course... or wherever some of the old rich guys hang out... and try and snag one...

She tried that. All the rich guys are too old for her. She doesn't want to take care of an old geezer...

[FUEGO]

Quote:

Originally Posted by FIREdreamer No need to lie. I am losing my job in 2 weeks (everyone thinks that I feel like about it, when in fact I feel like ). Plus, in 2-3 years, my wife will "lose" her high paying job and we will become seriously "underemployed" or (with a bit of luck) become even permanently "unemployed". Soooo, how could a couple of 40 year old bums be in a position to help anyone financially? We will have enough problems on our own, like decide what to do all day as unproductive members of society...

My apologies for suggesting lying. What is necessary is what you are suggesting - tactful omission of some facts and some perception management is what you need.

Make sure MIL doesn't know you could be an endless source of cash flow.

[haha]

Quote:

Originally Posted by Texas Proud OK.... so suggest to her to get out to the golf course... or wherever some of the old rich guys hang out... and try and snag one... (well, I guess I should first ask if she is a 'looker' or not).... because, short of that you are not going to like what happens to you when you run out of money....

Ive known a couple of older women who managed to spinout a long life of doing little by just that strategy. One of them even did an intermediate stint with a female lover. Older men can be very stupid, which helps with this life plan.

[FIREd]

Quote:

Originally Posted by easysurfer Sounds like you and DW are nearing an impasse with your MIL. Has your MIL worked the numbers about what expenses to cut to save to money needed? Sometimes folks just make a blanket statement and say, "no it won't work" before even considering looking at actual numbers. Maybe if she had it spelled out in front of her in black and white (some type of Budget, there I said the B word ) she'd come on board and give it a try. A bitter pill to swallow, but maybe the toughest part is getting her to start.

Actually, I don't feel like we are nearing an impasse (but maybe she is). I think we are nearing the point where we are going to let her deal with her own problems. We have done a lot for her over the years.

1) I have been warning her to cut spending for 3 years, which she has mostly refused to do.
2) I found her the perfect job: front desk clerk at a vet's office (she loves animals). This low stress and physically undemanding job was hers but she turned it down because it interfered with her "social calendar". For Pete sake!
3) I spend many hours a week doing things for her (yard work, house maintenance, running errands, etc..) which saves her thousands of $$$ a year.
4) I am helping her to get her financial house in order once and for all, researching SPIAs and reverse mortgages.
5) She refuses to sell her house and downsize. I spent hours looking for nice condos and townhouses but she decided that nothing was good enough for her.
6) And, she never does anything for us. Ever. Even pet sitting while we travel is too much to ask.

Pretty much, our relationship with her is a one way street. So I feel we give her enough already and I will continue to give her some of my time. But not money. Sorry. If she doesn't want to help herself, then we do not feel obligated to help her either. DW and I start to feel at peace saying no to her.

[BigNick]

I'm not sure I see the point of a SPIA with a fixed-rate COLA. Surely you can get much the same result by taking the difference which you get from a no-COLA SPIA and investing it every month?

I can see the point of CPI adjustment because you are asking the insurance company to assume the variable inflation risk. But if they are charging you 20% from each month's payment to provide 3% COLA, you could take that 20% and do a fair job investing it yourself. Maybe have enough socked away to buy a mini-SPIA after a few years.

It seems like those insurance policies with both a deductible and a maximum payout that you are likely to hit. You're just paying them commission for no added value.

What have I missed here? (Disclaimer: its after 10pm here and the bar is open, albeit moderately.)

[easysurfer]

Quote:

Originally Posted by FIREdreamer Actually, I don't feel like we are nearing an impasse (but maybe she is). I think we are nearing the point where we are going to let her deal with her own problems. We have done a lot for her over the years. 1) I have been warning her to cut spending for 3 years, which she has mostly refused to do. 2) I found her the perfect job: front desk clerk at a vet's office (she loves animals). This low stress and physically undemanding job was hers but she turned it down because it interfered with her "social calendar". For Pete sake! 3) I spend many hours a week doing things for her (yard work, house maintenance, running errands, etc..) which saves her thousands of $$$ a year. 4) I am helping her to get her financial house in order once and for all, researching SPIAs and reverse mortgages. 5) She refuses to sell her house and downsize. I spent hours looking for nice condos and townhouses but she decided that nothing was good enough for her. 6) And, she never does anything for us. Ever. Even pet sitting while we travel is too much to ask. Pretty much, our relationship with her is a one way street. So I feel we give her enough already and I will continue to give her some of my time. But not money. Sorry. If she doesn't want to help herself, then we do not feel obligated to help her either. DW and I start to feel at peace saying no to her.

FIREdreamer,

Thanks for the clarification about the situation pretty much being a one way street. Sometimes one has no choice but to someone deal with her own problems.

Since she pretty much hasn't done anything for you as you mentioned in #6, what I would do is still list out the a path she could follow (seems like you already did for her), then just say, "Dear MIL, here is what you can do to help your situation...keep us posted ..." then walk away and get back to your regular life. From what I read, she's still very able but just unwilling to change.

You know the sayin..."You can lead a horse to water ..."

Best of luck...


Easysurfer

[Texas Proud]

Quote:

Originally Posted by FIREdreamer She tried that. All the rich guys are too old for her. She doesn't want to take care of an old geezer...

Maybe when the cash runs out and your checks do not come she might rethink this strategy.... but then again, you did not say she was a looker...

If I were one of those old geezers... I would get me a really young thing that would take care of me... Not some old lady who has more wrinkles than a prune...


OK... better duck and

[Texas Proud]

Quote:

Originally Posted by haha Ive known a couple of older women who managed to spinout a long life of doing little by just that strategy. One of them even did an intermediate stint with a female lover. Older men can be very stupid, which helps with this life plan.

Funny... at my old job there was a guy who's father had a number of ladies after him... he drove a Corvette... and they saw $$$$s...

He played them all....


Now, my sister knows of someone whos wife died.... and was married in less than a year... got hooked very quickly... as you say... stupid..

[Texas Proud]

Quote:

Originally Posted by BigNick I'm not sure I see the point of a SPIA with a fixed-rate COLA. Surely you can get much the same result by taking the difference which you get from a no-COLA SPIA and investing it every month? I can see the point of CPI adjustment because you are asking the insurance company to assume the variable inflation risk. But if they are charging you 20% from each month's payment to provide 3% COLA, you could take that 20% and do a fair job investing it yourself. Maybe have enough socked away to buy a mini-SPIA after a few years. It seems like those insurance policies with both a deductible and a maximum payout that you are likely to hit. You're just paying them commission for no added value. What have I missed here? (Disclaimer: its after 10pm here and the bar is open, albeit moderately.)

I think what you missed is that MIL is irresponsible and would not put the difference in an account... if not saving is being made... no growth to offset the inflation...

[FIREd]

Quote:

Originally Posted by Texas Proud Maybe when the cash runs out and your checks do not come she might rethink this strategy.... but then again, you did not say she was a looker... If I were one of those old geezers... I would get me a really young thing that would take care of me... Not some old lady who has more wrinkles than a prune... OK... better duck and

Let just say that, for her age, you could do a lot worse. Anyone interested? I think HaHa would be her type. Good looking with money in the bank... What do you say Ha?

[BigNick]

Quote:

Originally Posted by Texas Proud I think what you missed is that MIL is irresponsible and would not put the difference in an account... if not saving is being made... no growth to offset the inflation...

Sorry if it wasn't clear: it was intended as a neutral question, not so much a discussion of the appropriate product for this situation. It seemed on-topic based on the thread title (I wrote it having only read the first dozen or so posts) but perhaps it's now off-topic.

[FIREd]

Quote:

Originally Posted by brewer12345 This sounds like bullpucky. No doubt the home officewould like to hear about this particular agent's sales practices as well.

It was bullpucky. SPIAs funded with qualified money can indeed be COLA'd. It was confirmed by a Mass Mutual agent (very knowledgeable and straight shooting salesman. How refreshing!)

[NW-Bound]

Quote:

Originally Posted by FIREdreamer She won't move. End of discussion. We showed her nice condos and townhouses in nice and safe neighborhoods for half the cost of her current house. I thought the units we showed her were very attractive for a single person in her situation, but she found everything "sordid".

One of my brothers in law wanted to buy a house. They earn modest pays. He is in his early 60, and most likely does not have a big saving. In the recent past, they complained about their jobs, and his wife wanted to quit working. Their workplace has also been outsourcing to India, and there have been layoffs. He and his wife had never been home owners, and we suspect they did not know about hidden costs of home ownership. He was not at all a handyman, and I don't think he even owned a hammer.

So his own brother wanted to help them look for a house. My wife later overheard them telling someone else that the houses recommended to them were squalid, and it was insulting to them that the other brother would recommend such houses.

Whoa! The other brother said that the houses that he found were good deals in his view, and that they were nicer than their existing apartment. I believed him.

I am glad we stayed out of it, and not got involved at all. Not to be selfish, but I have learned time and time again that it is VERY difficult to help people.

[Gearhead Jim]

If anyone wants to read a similar story about a different relative, check my thread "Support Sister?"

Some people just don't get it.

[FIREd]

Update:

We requested quotes from several annuity companies and after interacting with agents from various companies, this is where we are (all payouts for a $100K premium and single life only):

Penn Mutual: Except for a misunderstanding on MIL's part, good experience overall. They offer a good SPIA product, but they only offer COLAs on annuities funded with non-qualified money. They had the highest payout for a non COLA'd SPIA, about $611/month.

Mass Mutual: Good experience overall. Straight forward SPIA product. They offer COLA on qualified assets, but due to MIL's age, they will only allow the COLA to be 2% or less. With a 2% COLA, the initial monthly payout comes to $487.

Nationwide: definitely not on our side. We asked for a SPIA quote (with inflation adjustment) and we got a quote for a variable annuity. The monthly payout is only about $437, fixed (no inflation adjustment). The upside is, if the market does well, MIL could pass the policy's remaining cash value to her heirs. The downside is, if the market does poorly, she would get a very low fixed monthly payout with no inflation adjustment and nothing to pass on to her heirs. The fees were pretty high (>2%).

Prudential: appalling, IMO. Another one pushing variable annuities. Lots of "hypothetical scenarios" in that one, all showing potentially huge increases in monthly income over the years, even if markets perform relatively poorly. My objection: all their scenarios use random annual returns that do not appear so random to me. For example, in every single scenario, the early years happen to have much better returns than the later years (for example: year 1: +15%, year 2: +8%, year 3: +20%, etc... Year 30: -30%). The poor performance in year 30, brings the scenario's average annual return down (so they can call it a poor market scenario) but we all know that the "sequence of returns" can make a huge difference on the outcome of 2 scenarios with identical average annual returns. So I think their scenarios are overly optimistic and quite frankly useless (to say the least). Reminds me of Ameriprise in many ways.

American General (AIG) via Vanguard. Terrific service. Also the only company offering full CPI adjustments with no cap. The initial payout would be about $435 a month. Vanguard would handle all the paperwork and asset transfer for free.

John Hancock: No inflation adjustment or COLA. Payout about $570 per month.

We are leaning towards Mass Mutual's 2% COLA annuity and AIG's CPI-adjusted annuity.

[dgoldenz]

Quote:

Originally Posted by FIREdreamer Update: We requested quotes from several annuity companies and after interacting with agents from various companies, this is where we are (all payouts for a $100K premium and single life only): Penn Mutual: Except for a misunderstanding on MIL's part, good experience overall. They offer a good SPIA product, but they only offer COLAs on annuities funded with non-qualified money. They had the highest payout for a non COLA'd SPIA, about $611/month. Mass Mutual: Good experience overall. Straight forward SPIA product. They offer COLA on qualified assets, but due to MIL's age, they will only allow the COLA to be 2% or less. With a 2% COLA, the initial monthly payout comes to $487. Nationwide: definitely not on our side. We asked for a SPIA quote (with inflation adjustment) and we got a quote for a variable annuity. The monthly payout is only about $437, fixed (no inflation adjustment). The upside is, if the market does well, MIL could pass the policy's remaining cash value to her heirs. The downside is, if the market does poorly, she would get a very low fixed monthly payout with no inflation adjustment and nothing to pass on to her heirs. The fees were pretty high (>2%). Prudential: scandalous, IMO. Another one pushing variable annuities. Lots of "hypothetical scenarios" in that one, all showing potentially huge increases in monthly income over the years, even if markets perform relatively poorly. My objection: all their scenarios use random annual returns that do not appear so random to me. For example, in every single scenario, the early years always happen to have much better returns than the later years (for example: year 1: +15%, year 2: +8%, year 3: +20%, etc... Year 30: -30%). The poor performance in year 30, brings the scenario's average annual return down (so they can call it a poor market scenario) but we all know that the "sequence of returns" can make a huge difference on the outcome of 2 scenarios with identical average annual returns. So I think their scenarios are overly optimistic and quite frankly useless (to say the least). American General (AIG) via Vanguard. Terrific service. Also the only company offering full CPI adjustments with no cap. The initial payout would be about $435 a month. Vanguard would handle all the paperwork and asset transfer for free. John Hancock: No inflation adjustment or COLA. Payout about $570 per month. We are leaning towards Mass Mutual's 2% COLA annuity and AIG's CPI-adjusted annuity.

Out of those I would take the Penn Mutual....it would take a long time for the others even with COLA/CPI adjustments to compare with PM. The A- rated company I mentioned earlier would give her $546/month guaranteed for life after one year, but if she died before she drew down the principal, the remaining money not yet paid is passed on to the beneficiary, unlike a SPIA. $530/month with an A rated company. $665/month if she waited until age 70 to start the income. If leaving $$ to beneficiaries is of no concern, PM seems like the best option.

[zinger1457]

Quote:

Originally Posted by FIREdreamer Update: We requested quotes from several annuity companies and after interacting with agents from various companies, this is where we are (all payouts for a $100K premium and single life only):

I think a big part of the problem is not so much the company selling the annuity but the agent you're dealing with since they usually don't work directly for any specific company and will try to push the product that gives them the highest commission.

[dgoldenz]

Quote:

Originally Posted by zinger1457 I think a big part of the problem is not so much the company selling the annuity but the agent you're dealing with since they usually don't work directly for any specific company and will try to push the product that gives them the highest commission.

There isn't much commission in a $100k SPIA with any company. You're not talking a $1 million annuity here.

[FinanceDude]

In pretty much 100% of cases, the payout from a SPIA will be higher than a VA with living benfits.......so go SPIA. I guess I should ask, WHY a COLA SPIA? The payment goes up every year, but it takes a lot longer to get to the point where the COLA overcomes a NOn-COLA SPIA. She doesn't have enough money to live on now, why give her less?

[FIREd]

Quote:

Originally Posted by FinanceDude In pretty much 100% of cases, the payout from a SPIA will be higher than a VA with living benfits.......so go SPIA. I guess I should ask, WHY a COLA SPIA? The payment goes up every year, but it takes a lot longer to get to the point where the COLA overcomes a NOn-COLA SPIA. She doesn't have enough money to live on now, why give her less?

When asked whether she prefers 1) a smaller initial payout, but one that increases with inflation, or 2) a larger initial payout with an ever eroding purchasing power, she much prefers 1).

She is still young, healthy and has good family genetics. So she could potentially live another 30 years and that seems like a loooong time to go without COLA or inflation protection (especially considering that many experts see higher inflation down the road). In addition, I am tired of having her financial problems hanging over our heads. So I want her to get set financially for the long term. The higher initial payouts on non-COLA SPIAs might sound great right now, but if her income falls behind in 10 years due to inflation, we will be right back where we are now except she won't have any more assets to monetize. Guess who will be left holding the bag? By then, DW and I will have been retired for a while and any money we give her will have to come from our discretionary budget. Heck no. I want her SPIA payout to be as close to a SS check as possible.