Inflation-indexed SPIAs

[zinger1457]

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

The OP stated that he requested quotes for a SPIA with a COLA but instead received quotes for variable annuities. I'm sure it was just an honest mistake by the agent and had nothing to do with the increased commissions they would get from a variable annuity.

 

[dgoldenz]

The OP stated that he requested quotes for a SPIA with a COLA but instead received quotes for variable annuities. I'm sure it was just an honest mistake by the agent and had nothing to do with the increased commissions they would get from a variable annuity.

That I can agree with. Either that or the company's SPIA rates were a joke and knew the conversation would end there....or a combination of both.

 

[FIRE'd@51]

I know you mentioned above that she just started SS three months ago. However, she could still do a "blended" approach. If she is getting $1100 per month from SS now, she could hold back about 40K (3 years worth of SS) from funds currently earmarked for a SPIA, with the plan to repay and restart SS at age 70. This would increase her monthly SS check by $267 in today's $, a better return (8% withdrawal rate) on that 40K than any of the COLA'd products mentioned here. Additionally, you get the US government guarantee, along with the fact that, at most, 85% of SS is taxable under current law, versus 100% with a qualified SPIA. Also, SS is not taxable by most states - I don't know about a qualified SPIA.

Perhaps you and she will decide that the monthly $ difference isn't worth the trouble, but we do try to optimize things here. After all, the finance books all say "more is better than less".

 

[FIREd]

First, let me thank all of you who participated in the conversation.

MIL has finally signed her annuity contracts. After looking more carefully at reverse mortgages and receiving several quotes, she decided to go with a HECM reverse mortgage from Wells Fargo (lowest fees/costs we could find).

Her monthly income will look something like:
$1,000 from SS (CPI-adjusted)
$435 from a Vanguard Lifetime Annuity Program SPIA (CPI-adjusted)
$611 from a Penn Mutual SPIA (no COLA)
$636 from Wells Fargo reverse mortgage (no COLA) - Just based on what we (and the county) think her house is worth. Waiting for an appraisal for the final number.

Total: $2,682 monthly. Her expenses stand roughly at $2,500 per month right now (all included).

It also leaves her about $30K liquid for emergencies. The interests and dividends from that money could give her a small annual bonus.

The whole process has, I think, jolted her into reality. She has (finally!) decided to voluntarily reduce her expenses. She is ditching her expensive cell phone plan and going with a pre-paid T-mobile plan. The cleaning lady was let go. She will be shopping for a cheaper Medicare supplemental plan in the fall. Things are looking up!

 

[FUEGO]

Total: $2,682 monthly. Her expenses stand roughly at $2,500 per month right now (all included).

It also leaves her about $30K liquid for emergencies. The interests and dividends from that money could give her a small annual bonus.

Sounds like a decent outcome. Her current spending needs are met and roughly 1/2 her income stream is COLA'd. Should be at least a few years before inflation starts taking a toll on purchasing power.

Given that you and your DW are the ultimate honey pot, this plan should limit your exposure to that particular risk for quite a while. And limit the extent of the risk long term (ie you won't be hit up for basic expense money for quite a while since she has a partially COLA'd income stream).

I wish we could get my in-laws this level of income stream since DW and I will likely be the honey pot for my parents in law. They will be stuck with something like a 30k money market account and meager SS payments, plus probably public assistance.

 

[FIREd]

Sounds like a decent outcome. Her current spending needs are met and roughly 1/2 her income stream is COLA'd. Should be at least a few years before inflation starts taking a toll on purchasing power.

Given that you and your DW are the ultimate honey pot, this plan should limit your exposure to that particular risk for quite a while. And limit the extent of the risk long term (ie you won't be hit up for basic expense money for quite a while since she has a partially COLA'd income stream).

Her basic living expenses are now covered by inflation-adjusted sources of income and one of her largest expenses (20% of budget) is her pets. Except for one, they are older and will probably pass on in the next few years and she won't replace them. So that's a huge deflationary expense. I am starting to feel some relief.

 

[FUEGO]

Her basic living expenses are now covered by inflation-adjusted sources of income and one of her largest expenses (20% of budget) is her pets. Except for one, they are older and will probably pass on in the next few years and she won't replace them. So that's a huge deflationary expense. I am starting to feel some relief.

Even better news. So the $2500 spending is what she is spending now before major cost-cutting measures? I guess there would always be room to cut more as inflation slowly eats away at the real value of the non-COLA'd streams of income.