Recommendations requested for an annual income strategy for my Sister-In-Law

[aja8888]

My SIL is retired, 76 years old, widowed seven years, and is healthy enough to live well into her 90’s (family history). She lives alone in NC (Raleigh area) in a 2,500 Sq. Ft. two story house with a mortgage (I’ll get to that later).

She has asked me to give her guidance on a strategy for generating consistent monthly income from her taxable Schwab brokerage account which has around $200 K in it. She is not the least bit knowledgeable on investing and doesn’t know the difference between a stock or a bond (really). No family members are around to help her with this either.

She also has an inherited IRA at Schwab with $15 K in it in a money market fund.

Prior to her moving her accounts to Schwab a couple of years ago (my idea), she was with Edward Jones and was being milked like a barnyard cow. Besides all their hidden fees and dozens of poor trades, etc, they sold her an annuity which provide cash to cover some of her expenses. She also has a very small pension and SS. So she’s not hurting, but would like the $200 K to provide enough to cover her house payment (not sure what that is at the moment but probably $1,000/month). She also has a part time job generating about $1,000/month.

Looking quickly at the two annuities she has, one has some kind of “reset” provision on the “factor” used to calculate the monthly payout and it will reset soon. I suspect it will reduce her payout. The other annuity is fixed over the life of the contract. Neither are COLA’d and together provide ~$2,000/month in taxable income. One has a cash out at her passing of around $40 K, the other no payout.

On a side note, EJ got her to pull funds out of her paid off house (get a mortgage) to buy one of the annuities. Nice of them!

The other annuity was bought over a free dinner presentation!

Her $200 K has been in Schwab’s SVWXX and with rates dropping, she’s seeing less income per month from it and would like to increase the payout. Loss of principal is not wanted either. After her terrible experience with EJ, she is gun-shy on stocks (rightfully so).

On another note, her medical costs are going up (along with most other things) as she has breast cancer that was treated successfully earlier this year (supposedly caught early). And she is facing new A/C work at the house as the units are pretty old. I suspect a new roof will be needed soon too. Last time I spoke with her, she mentioned, paying for tree work and replacing rotted beck boards, so the house is eating at her income.

With respect to the big house that 30 years old she is living in, I suggested downsizing to a smaller place, but she wasn't thrilled with the prospect of that idea.

What to do with the $200 K in Schwab will be a good first step for her and settle her fears of less income from that account going forward. Thoughts here will be greatly appreciated.

 

[TickTock]

Getting 6% on the 200k is a challenge. On the easy, safe side she could put it in USTs - the 7-year is around 4%. Or perhaps lock in half of it at the 7-year rate and shorter (<1 year) durations for the other half. I don't know if Schwab can set up a rolling treasury ladder.

 

[aja8888]

Getting 6% on the 200k is a challenge. On the easy, safe side she could put it in USTs - the 7-year is around 4%. Or perhaps lock in half of it at the 7-year rate and shorter (<1 year) durations for the other half. I don't know if Schwab can set up a rolling treasury ladder.

No USTs are yielding near 5 - 6%. And with the front end of the Yield curve going to lower after the next rate cut, even short rates are not much over 4% now. I thought about 1/2 in a CEF and the rest in a Muni bond funds to offset some taxes. But looking for other thoughts.

 

[TickTock]

I'd shy away from CEFs - you posted "Loss of principal is not wanted either."

Maybe a MYGA? I'm in the process of buying a 5-year that yields 5.6%. Your SIL is in RMD territory, so I don't know exactly how that impacts it (MYGAs are subject to RMDs) - but I think it'd be okay if she goes with one that allows 10% withdrawal per year.

 

[aja8888]

I'd shy away from CEFs - you posted "Loss of principal is not wanted either."

Maybe a MYGA? I'm in the process of buying a 5-year that yields 5.6%. Your SIL is in RMD territory, so I don't know exactly how that impacts it (MYGAs are subject to RMDs) - but I think it'd be okay if she goes with one that allows 10% withdrawal per year.

That's a good thought, thanks!

But at 76 years old, I'm not sure the sellers of the MYGA would allow her to buy one. Maybe I'm mistaken there? Her funds are in a taxable account so the RMD won't matter. She has a small IRA with $15 K in it she pulls her RMD from.

 

[Dash man]

With the market down, there are opportunities to buy some stocks that pay out dividends in the 6% range. There is risk of some volatility of course, but looking into the history of stocks like O, VZ, MAIN and some others, you should be able to put together a reliable income stream. Show her the history of these stocks and how they’ve held up during the rough markets. MAIN has even been paying special dividends each quarter on top of their monthly dividend. O pays monthly and raises their dividend a few times a year in small increments.

 

[aja8888]

With the market down, there are opportunities to buy some stocks that pay out dividends in the 6% range. There is risk of some volatility of course, but looking into the history of stocks like O, VZ, MAIN and some others, you should be able to put together a reliable income stream. Show her the history of these stocks and how they’ve held up during the rough markets. MAIN has even been paying special dividends each quarter on top of their monthly dividend. O pays monthly and raises their dividend a few times a year in small increments.

If I can get past the mention of the work "stock" with her, I'll give it a try.

 

[TickTock]

But at 76 years old, I'm not sure the sellers of the MYGA would allow her to buy one. Maybe I'm mistaken there? Her funds are in a taxable account so the RMD won't matter. She has a small IRA with $15 K in it she pulls her RMD from.

There are max allowable ages (varies based on the insurer). A typical age is 85.

The interest grows tax-deferred, so that part (only) is subject to RMDs. I haven't looked at it closely as DW and I aren't there yet.

Maybe a mix? Some dividend stocks, MYGA, maybe other bonds or USTs?

 

[aja8888]

There are max allowable ages (varies based on the insurer). A typical age is 85.

The interest grows tax-deferred, so that part (only) is subject to RMDs. I haven't looked at it closely as DW and I aren't there yet.

Maybe a mix? Some dividend stocks, MYGA, maybe other bonds or USTs?

Yes, thanks, this makes good sense. She could take say $150,000 of the $200,000 and get a MYGA that will pay out deferred @ 5.6% for 5 years. The other $50,000 she could leave in a MM fund as a cash reserve.

Doing this, she could spend down the $50 K and after 5 years still have about $200 K.

 

[TickTock]

Last thought - it sounds like one of the two annuities SIL has is a SPIA, and it sounds like you don't care for them. But, if she's not concerned about leaving a legacy, she's looking in the range of 8.5 - 9.0% for a non-COLA'd SPIA. I don't know how much a COLA would lower the rate. The annuity brokers tend to want your email, but I did find this:

What Is An Immediate Annuity? How Does It Work? | Calculator (2025)

Could be another thing to add into the mix.

 

[pb4uski]

Getting 6% on the 200k is a challenge. On the easy, safe side she could put it in USTs - the 7-year is around 4%. Or perhaps lock in half of it at the 7-year rate and shorter (<1 year) durations for the other half. I don't know if Schwab can set up a rolling treasury ladder.

I don't agree. She could put the $200k into a portfolio of investment grade preferred stocks issued by name brands and get close. A few of my favorites are Allstate ALL-B (8.2% yield, Baa1), Citigroup C-N (9.88%, Baa3) and US Bancorp USB-A (7.43% yield, Baa2).

Other names in my portfolio include MetLife, JP Morgan Chase, Schwab, Wells Fargo, Bank of America, Goldn Sachs, The Hartford, State Street and others. I have over 50 different preferreds, most of which are investment grade and they yield 6.8% so 6% is very possible. Also, many of these are qualified income so would likely be tax-free for the OP's SIL.

 

[pb4uski]

Last thought - it sounds like one of the two annuities SIL has is a SPIA, and it sounds like you don't care for them. But, if she's not concerned about leaving a legacy, she's looking in the range of 8.5 - 9.0% for a non-COLA'd SPIA. I don't know how much a COLA would lower the rate. The annuity brokers tend to want your email, but I did find this:

What Is An Immediate Annuity? How Does It Work? | Calculator (2025)

Could be another thing to add into the mix.

Fair idea, but to be clear, that 8.5% to 9.0% is a payout rate and not a rate of return so you're sort of comparing apples and oranges. Also, the payout is fixed so the buying power will decay over time. The other downside of a SPIA is that she would not have access to the money.

A better option might be a TIPS ladder. For that $200k, she could buy a TIPS ladder that would pay her $12,000/year, inflation adjusted, for 20 years. She would be creating her own COLA adjusted 20 year annuity and the cherry on top is if she ever needed access to her money she could sell some of the last rungs.

 

[TickTock]

I don't agree. She could put the $200k into a portfolio of invtment grad preferred stocks issued by name brands and get close.

I should have been clearer; getting 6% without using stocks or other assets that risk loss of principle is a challenge.

 

[TickTock]

Fair idea, but to be clear, that 8.5% to 9.0% is a payout rate and not a rate of return so you're sort of comparing apples and oranges. Also, the payout is fixed so the buying power will decy over time. The other downside of a SPIA is that she would not have access to the money.

All true. I certainly wouldn't advocate putting the entire $200k into a SPIA.

A better option might be a TIPS ladder. For that $200k, she could buy a TIPS ladder that would pay her $12,000/year, inflation adjusted, for 20 years. She would be creating her own COLA adjusted 20 year annuity and the cherry on top is if she ever needed access to her money she could sell some of the last rungs.

I need to expand my FI holdings. What TIPS are paying 6% right now?

 

[pb4uski]

All true. I certainly wouldn't advocate putting the entire $200k into a SPIA.



I need to expand my FI holdings. What TIPS are paying 6% right now?

A 20 year TIPS ladder is paying 2.1% real... so if inflation over the next 20 years is 2.5% then the yield is 4.6%.

But the payout rate would be 6%... $200k would buy 20 years of inflation-adjusted payouts of $12k based on 2025 dollars. That would cover her house payment and more and importantly, provide a source of inflation adjusted cash flow to complement her fixed SPIA benefits.

 

[Phroig]

She must downsize! A 2500 sq. foot two-story home is way too much for a 76 year-old with health issues. Downsizing would also relieve some of her financial pressures. A more complicated solution to the house problem might be to rent out a bedroom or two, if that's possible in her town.
I'd also be wary of putting all her money into fixed income unless there's some inflation protection or COLA. Her medical and other expenses will increase significantly with inflation, and her income needs to keep up. Putting at least a portion of her money into equities makes sense.

 

[pb4uski]

I should have been clearer; getting 6% without using stocks or other assets that risk loss of principle is a challenge.

While some modest loss of principal might happen if she were forced to sell into a down market, you're getting paid for it and the volatility is modest.

 

[aja8888]

A 20 year TIPS ladder is paying 2.1% real... so if inflation over the next 20 years is 2.5% then the yield is 4.6%.

But the payout rate would be 6%... $200k would buy 20 years of inflation-adjusted payouts of $12k based on 2025 dollars. That would cover her house payment and more and importantly, provide a source of inflation adjusted cash flow to complement her fixed SPIA benefits.

Thanks, PB, I'm going to look into the TIPS ladder.

 

[TickTock]

While some modest loss of principal might happen if she were forced to sell into a down market, you're getting paid for it and the volatility is modest.

I agree. I was trying to stay withing the constraints of the OP.

 

[aja8888]

She must downsize! A 2500 sq. foot two-story home is way too much for a 76 year-old with health issues. Downsizing would also relieve some of her financial pressures. A more complicated solution to the house problem might be to rent out a bedroom or two, if that's possible in her town.
I'd also be wary of putting all her money into fixed income unless there's some inflation protection or COLA. Her medical and other expenses will increase significantly with inflation, and her income needs to keep up. Putting at least a portion of her money into equities makes sense.

I've suggested this and we had a RE Agent over on my last visit. She has the mortgage (I'm guessing $150 K) and her house was valued at $630 K two years ago in Cary, NC. RE fees would be 6% of $630,000 or near $40 K. Then single level the smaller homes we looked at in the area were between $400 - 500 K. So that did not work out for her. She is determined to stay in the house.

 

[pb4uski]

I agree with others that she should downsize, especially since the cost of the big house and home repairs are eating her alive. If I was 76 and lived alone and wasn't really well off I would consider a nice ground level condo in a nice area/association. I would think that would be much more affordable than the big house. When evaluating housing you need to alos look at annual cost of ownership and that is where the savings might be, along with investment income on the excess of proceeds from sale over the cost of the new place.

 

[aja8888]

I'm going back there in the middle of May and we will revisit the house downsizing again.

 

[Dash man]

If I can get past the mention of the work "stock" with her, I'll give it a try.

Equities?

 

[pb4uski]

Or just "preferreds"... that sounds good, eh?

 

[gauss]

If she doesn't like managing money and she is not very good at picking advisors (present company excluded of course), then why not go the annuity route?

Sure you could do the MYGA, but why not a SPIA? If she doesn't want to leave a legacy to her kids, wouldn't that be the most efficient way to plan?

With the mortality credits involved, if she lives much longer than average then she wins. If she dies young, then it doesn't matter.

Sure folks like us here enjoy optimizing quantitative information and attempting to win the game, but I think this is not representative of the average senior.

Also re-reading you intro you state that she desires "consistent monthly income" form the funds. I don't think you will beat the SPIA with treasuries for this purpose and other investments would have to apply an asterisk/disclaimer to the word consistent.

Just be sure that she doesn't have more NPV in any one life insurance company than her state guarantee association will back.

Maybe buy $150k of SPIA and leave $50k liquid for any lumpy expenses and peace of mind. Just know that having the liquid funds available may make her susceptible to scammers so there is that risk too.

-gauss