Investment question

[TCY Junkie]

My in-laws recently sold their house and moved in with wife and I. They had 60 acres, pool, 3k sq ft house, guest house, and more. Her father had diabetes unchecked for years and can't feel below his knees. Was just too much for them. Her mother will be getting 970 social security in couple months. They need some cash 5 years ago so it seems they put 617k into an annuity that pays 2200 a month for life starting last month. They also got 2000 a month when started until last month.

The annuity balance is currently 546000k, might get 450k if surrendered. In 5 years be 388k, in 10 years 222k, in 15 years. 48k. It says the rate is 1 percent. I'm worried in 20 years 2200 a month isn't going to be enough even with their 2900 social security.

Would it be wise to buy a 300k house and rent out. They do have 540k in bank but planning on spending half on house since we are moving right after they moved in. So not worried about costly house repair messing everything up. Are there safer options that pay enough to make it worth moving the moving. Would be interested in hearing them. With them moving in with us, they should almost be able to not even need any of the 2200.

[Edward64]

Originally Posted by TCY Junkie

My in-laws recently sold their house and moved in with wife and I. They had 60 acres, pool, 3k sq ft house, guest house, and more. Her father had diabetes unchecked for years and can't feel below his knees. Was just too much for them. Her mother will be getting 970 social security in couple months. They need some cash 5 years ago so it seems they put 617k into an annuity that pays 2200 a month for life starting last month. They also got 2000 a month when started until last month.

The annuity balance is currently 546000k, might get 450k if surrendered. In 5 years be 388k, in 10 years 222k, in 15 years. 48k. It says the rate is 1 percent. I'm worried in 20 years 2200 a month isn't going to be enough even with their 2900 social security.

(Assume annuity $2,200 is not adjusted for inflation)

Been a while but we are looking for PV (Present Value) of what $2,200 in 2042 will look like in today. Assuming a 4% interest rate (which think is the assumed inflation rate), it comes out to about $1,004.

Present Value Calculator

Social security is adjusted for inflation so the $2,900 in today's dollars will be (theoretically) the same buying power in 2042.

So in 2042, they'll have SS $2,900 + Annuity $1,004 = $3,904 a month in today's buying power.

Would it be wise to buy a 300k house and rent out. They do have 540k in bank but planning on spending half on house since we are moving right after they moved in. So not worried about costly house repair messing everything up. Are there safer options that pay enough to make it worth moving the moving. Would be interested in hearing them. With them moving in with us, they should almost be able to not even need any of the 2200.

Not sure I understand above bolded. Why are they spending half on a house since they are moving in with you? Are you selling your house to them?

If they are moving in with you and have $540k free and clear, I'd personally go with taking out 1 years of living expenses above the monthly $2,200 they are already getting, and invest the rest in the stock market. A lot less hassle than buying and renting out a house.

*****

Not a Financial Advisor, but if I was one, I would like to know their ages (60's vs 90's), health, and risk tolerance (assume they are conservative). Sounds as if they may have already used a Financial Advisor to buy the annuity? If so, maybe setup a meeting with the FA (or get a second opinion) to discuss in greater detail.

[Swaggs]

Unfortunately, unless they are very young or were trying to avoid some form of taxes at the time, it sounds like they may have made a poor financial decision buying the annuity. With ~4% interest over the past 5 years, their $617K would have been worth about $750K today (a good investor would have made 7-10%+ per year over the past 5 years - 10% would have turned their money into close to $1,000,000 over that 5 years). They did get $144,000 ($2000 x 60 months) in that time, but the insurance company almost certainly still has the original $617K + $300K-$400K more that they have earned and will continue earning on).

I’m no financial expert and my math may be a little off, but I would tend to agree with Edward. They would almost certainly be better off taking the annuity balance out and starting over with $450K. They should probably talk to a fiduciary (rather than salesperson) and reset. I bonds are paying 9.62% right now and a married couple can buy 15K worth per calendar year. I would probably cash out and conservatively invest the $450K, start buying I bonds every month, and use the 540K + social security to buy a house and live off of it for the foreseeable future. A $300K house would give them $150K left, so that would give them $2500/month + a paid off house (and its equity) over the next five years before they would need to touch any of the money taken from the annuity.

I think buying a rental is risky as a short term investment for someone that is new to the business and has physical limitations that would make smaller repairs challenging. Over time, it would probably pay off, but there will be maintenance and periods of time without renters.

Again, not an expert and talk to a professional. This is what I would do. And the hardest part may be getting them to accept they made a mistake with the annuity and to move on from the money they lost.

[TCY Junkie]

Originally Posted by Edward64

(Assume annuity $2,200 is not adjusted for inflation)

Been a while but we are looking for PV (Present Value) of what $2,200 in 2042 will look like in today. Assuming a 4% interest rate (which think is the assumed inflation rate), it comes out to about $1,004.

Present Value Calculator

Social security is adjusted for inflation so the $2,900 in today's dollars will be (theoretically) the same buying power in 2042.

So in 2042, they'll have SS $2,900 + Annuity $1,004 = $3,904 a month in today's buying power.



Not sure I understand above bolded. Why are they spending half on a house since they are moving in with you? Are you selling your house to them?

If they are moving in with you and have $540k free and clear, I'd personally go with taking out 1 years of living expenses above the monthly $2,200 they are already getting, and invest the rest in the stock market. A lot less hassle than buying and renting out a house.

*****

Not a Financial Advisor, but if I was one, I would like to know their ages (60's vs 90's), health, and risk tolerance (assume they are conservative). Sounds as if they may have already used a Financial Advisor to buy the annuity? If so, maybe setup a meeting with the FA (or get a second opinion) to discuss in greater detail.

Pretty sure it isn't adjusted for inflation. requested copy of policy and doesn't mention it, but it also doesn't mention anywhere the 2k they got for the first 5 years. Only table that shows their premium and what it would look like in the policy is 508k down and after 20 years 598k. That's the cash surrender value and that is without withdraws. They also have another policy for 100k identical.

We moved to Bastrop TX and wife didn't like her job. Was school librarian and couldn't do the things she enjoyed most in a public library. We bought the property with it in mind to build a house on it for them behind ours. Now we are moving north of Dallas. The current house which they own half of is valued about 460k and owe about 285k. Thinking of renting it since projected to grow about 50k in next year and possibly selling then or possibly just keep on renting it. That's another financial decision got to make later but far more concerned about the annuity. Right now until we buy a house in next few months north of Dallas we actually need the annuity to show as income for loan. At worse probably better to take money out of annuity after we close on new house and pay off new house loan and us pay them instead of the mortgage company. Was mainly looking into their retirement plan cause they were concerned if they passed away in 15 years if we could handle the size house we getting to accommodate them, us, and future kid.

He is 66 and she is 61 right now. She has terrible back issues. Does stuff and then takes morphine. I help her with stuff and she says she can use all the help I can give. Her husband could barely carry a conversation 5 years ago from the diabetes. He doing tons better but anything that puts any stress on him and it blows his mind. Usually just watch bad tv like scorpion king 5. She was overwhelmed taking care of their house. Feel like overstepping in a way but writing this makes me feel she really needs my help. She makes all the decision, but to close the account her husband will have to be there and he will definitely freak out when told about closing it. But he blows up and then is fine the next minute. Need a solid plan to convince her to address the issue, convincing her to deal with it and deal with her husband reaction may be the hardest part.... Was looking at the policy and she said this is terrible but I really don't know anything about those kind of things.

[TCY Junkie]

Originally Posted by Swaggs

Unfortunately, unless they are very young or were trying to avoid some form of taxes at the time, it sounds like they may have made a poor financial decision buying the annuity. With ~4% interest over the past 5 years, their $617K would have been worth about $750K today (a good investor would have made 7-10%+ per year over the past 5 years - 10% would have turned their money into close to $1,000,000 over that 5 years). They did get $144,000 ($2000 x 60 months) in that time, but the insurance company almost certainly still has the original $617K + $300K-$400K more that they have earned and will continue earning on).

I’m no financial expert and my math may be a little off, but I would tend to agree with Edward. They would almost certainly be better off taking the annuity balance out and starting over with $450K. They should probably talk to a fiduciary (rather than salesperson) and reset. I bonds are paying 9.62% right now and a married couple can buy 15K worth per calendar year. I would probably cash out and conservatively invest the $450K, start buying I bonds every month, and use the 540K + social security to buy a house and live off of it for the foreseeable future. A $300K house would give them $150K left, so that would give them $2500/month + a paid off house (and its equity) over the next five years before they would need to touch any of the money taken from the annuity.

I think buying a rental is risky as a short term investment for someone that is new to the business and has physical limitations that would make smaller repairs challenging. Over time, it would probably pay off, but there will be maintenance and periods of time without renters.

Again, not an expert and talk to a professional. This is what I would do. And the hardest part may be getting them to accept they made a mistake with the annuity and to move on from the money they lost.

Pretty sure they took it out of retirement and put it in there to avoid taxes and have steady income. If his mind wasn't debilitated he would never done this. He also started early retirement when he could have got disability. Was let go of a job after 2 weeks because he couldn't handle it, when before was a wiz at it. Looked into getting him full benefits last month. Saw online he should be able to prove he retired early cause of his condition but the couple lawyers I contacted seem to want to work on easier cases.

Once we buy something we will better know what more they need a year. Maybe 6k, maybe 20k. How hard is it to buy ibonds. Not sure if Financial planner(works for american equity) is bad or just gave them what they asked for. Did ask for surrender values along with cash values for 5, 10, 15, 20 years and only sent the cash value. Can wait 6 months to do something to settle in new house, plus their move here was nightmare. She hired a guy who quoted 2800, then 5800, then 7800, and finally 13k. Still don't have their stuff, but should have it soon. Been a month basically and every day she is consumed by these movers lying to her and trying to take advantage of her, writing them letters.

Probably better choices than rentals near dallas. Was thinking I could help them, definitely be better to do that than annuity they are in now. Probably add more to this thread in future. This is lot to think about and usually do my best planning when trying to go to sleep at night. Thanks for the replies and your time guys.

[JPhillips]

I don't know enough about the annuity to chime in, but I learned from my mother's long illness after Dad died that assets need to be given to children so that they aren't converted to medical payments if they have to enter a nursing home. There are rules around how and when to do it, but just be aware that anything in their name will need to be liquidated before they can get on Medicaid and at nursing home prices that won't take long. The system is designed to leave middle-class people with zero.

[Swaggs]

Originally Posted by JPhillips

I don't know enough about the annuity to chime in, but I learned from my mother's long illness after Dad died that assets need to be given to children so that they aren't converted to medical payments if they have to enter a nursing home. There are rules around how and when to do it, but just be aware that anything in their name will need to be liquidated before they can get on Medicaid and at nursing home prices that won't take long. The system is designed to leave middle-class people with zero.

This is a good point.

If they are to buy a new home, you should talk to the closing attorney to see if they should put your wife (or their other children) on the title.

There is a whole lot to unravel with this situation. How old are they and, without being morbid, what type of life expectancy do you estimate for them? What kind of financial habits/financial discipline do they have? That makes such a big difference for some of these things. For example, it is probably in their best interest to finance a home (with a healthy downpayment) versus paying cash for it if they are expected to live another 20+ years because that money they have will likely outearn interest rates and inflation over 20-years if they invest it.

[TCY Junkie]

They want to open up another bank account and thinking wells fargo, is it bad idea to talk to financial planner there. Read online banks have limited amount to offer. do I just google search bastrop/austin area and hope for a good one?

[NobodyHere]

Not a fan of Wells Fargo due to their recent scandals

Wells Fargo Forced To Pay $3 Billion For The Bank’s Fake Account Scandal

[TCY Junkie]

Originally Posted by NobodyHere

Not a fan of Wells Fargo due to their recent scandals

Wells Fargo Forced To Pay $3 Billion For The Bank’s Fake Account Scandal

What bank would you recommend? They have 540k in prosperity and want to put some in another.

[Swaggs]

I don't know enough about the area to recommend a bank, but I do know that FDIC only insures $250,000 per person named on the account, so they may actually need to split some of their money up between banks (if they haven't already).

Also, you had asked about the I-bonds. Here is a link with some info from the Treasury Dpt: Individual - Buying Series I Savings Bonds

You can buy them online from that site.

[flere-imsaho]

I do all my banking with Fidelity. They're fantastic. You can also use their advisory services, which I have found helpful and not pushing us towards particular products unnecessarily. Our local Fidelity rep and her team helped my wife out a lot in the aftermath of both her parents dying last year (consolidating accounts from numerous institutions, figuring out how not to end up with unanticipated tax bills, etc....).

For checking accounts, they actually split your money into accounts at FDIC insured banks (like Chase) in a way that is transparent to you (but you can see in the transaction log if you want). This ensures all your money is FDIC insured but otherwise the account acts like a normal checking account.

[TCY Junkie]

Little update. Last week she told her advisor to close income rider annuity and use one for 10 years at 5.45 percent.

I emailed the advisor in January and his first response was it was stupid to move it until after surrender. That would cost them at least 93k and 5k a year in interest. Feel like he wanted me to question the number and just trust him. Was shocked by his response. Seem like he getting better rates from that company or he didn't want to seem wrong to my inlaws. My inlaws treat him like he is their best fried. Didn't really know this until recently. The guy should have brought up to them they could be getting 26k a year basically and not lose their principal. To me he either dishonest or incompetent. Mother in law said there was just misunderstanding, which is impossible since he should be aware of the interest rates.

She also said been working for free the last few years. He made between 33k and 43k on them because american equity pays 5.5 to 7 percent on flexible deferred annuities. That's pretty good pay for working less than 3 week total in 6 years. Whoever said hard to admit they were wrong was absolutely right. Took months to agree to change it. And she is defending the guy still. Her movers cost her extra 5k moving and this guy would have cost her 93k just in 3 years and she seems happy with him ripping her off.

In the new annuity however I don't see how he can cost her most of her savings like the old annuity so there is that.

Right now they have 140k cash and 110k in a house they are selling. Thought it would be smart to lease old the property and sell in 10 years but decided to let that go because trying to deal with as little as possible with their money now. her son might buy a house and she wants to give him around 60k for it maybe as early as december. Is there a good saving account that less likely to lower rates quickly or recommendations for the 140k they have now that they might need access to in 6 months or so. Right now they are earning zero on the 140k in the bank. Was in a 6 months cd on fidelty but she took it all out when she paid 355k on new house. Would have put less down but it was from her brother in law because she didn't do stuff required to get loan.

Everything has been made as difficult as possible by them, but got in a home and putting their money in new annuity so hopefully everything major that needed addressing is taken care of.

[Edward64]

Not a financial advisor, so take it FWIW

Originally Posted by TCY Junkie

Her son might buy a house and she wants to give him around 60k for it maybe as early as december. Is there a good saving account that less likely to lower rates quickly or recommendations for the 140k they have now that they might need access to in 6 months or so.

For the $60k ...

Savings accounts rates will fluctuate. What's great now (e.g. Apple Savings @4.15%) may not be great in 6 months depending on the economy & markets. But still better than near 0% on like my Wells Fargo account (shifting majority of savings to Apple Savings is in progress).

So google on "best savings account rate" and research the big ones you recognize (there's probably dodgy ones out there). Someone earlier said Discover Card has savings account that pays decent. Or do Apple Savings like me if you are already in the ecosystem.

I think you know this already but will state - I would strongly suggest not putting that money into stock market at this time with a 6 month timeframe. It could well go up another 20% but it could also be much lower or negative growth.

For the $140k - $60k = $80k ... what are the plans for the $80k?

[Kodos]

My Discover savings account is at 3.90% APY right now.

[TCY Junkie]

Originally Posted by Edward64

Not a financial advisor, so take it FWIW



For the $60k ...

Savings accounts rates will fluctuate. What's great now (e.g. Apple Savings @4.15%) may not be great in 6 months depending on the economy & markets. But still better than near 0% on like my Wells Fargo account (shifting majority of savings to Apple Savings is in progress).

So google on "best savings account rate" and research the big ones you recognize (there's probably dodgy ones out there). Someone earlier said Discover Card has savings account that pays decent. Or do Apple Savings like me if you are already in the ecosystem.

I think you know this already but will state - I would strongly suggest not putting that money into stock market at this time with a 6 month timeframe. It could well go up another 20% but it could also be much lower or negative growth.

For the $140k - $60k = $80k ... what are the plans for the $80k?

She wants to take a trip to europe in 2 to 3 years, probably costing 20 to 30k. They are both in bad shape physically and want to get one last trip overseas in.

Definitely avoiding stock market as trying to just keep up with inflation as much as possible so they have enough to have in home care for her when the time probably comes.

Thanks for the recommendations. After house sells I might come back and see if there are better recommendations based on rate changes.

Think I'll look to get most her money into a savings account earning around 4 percent at least, until the house sells.

Rates are around 4 percent now, what have they been last 5 years.

Would it be dumb to after they sell house to put that 100k or most of it in an annuity earning around 5 percent. Probably leave them with about 60 to 80k at minimum after taking trip and helping their son. Their tax deffered annuity should be closer to 600k than 500k in 3 years and can take 10 percent out without penalty.

They both don't see living 20 years even though she 62 and he 67. Five years ago he couldn't carry conversation because of his diabetes. He should have got disability as he couldn't do the work anymore and got let go so he filed for social security. He was a very smart man before the diabetes. That's costing them 1k a month not filling for disability. Right now he's in the hospital because he's been coughing and his blood sugar is high. Been there 2 days when thought he was just going to get some medicine and some advice, probably be there at least another night as they had to give him another 2 insulin shots today. He has a sensitive stomach and been throwing up a lot, lead to dehydration. When they give him fluids his kidneys are not processing as fast as they would like and had to cut back on the fluids they gave him.

And my mother in law broke her back 15 years ago. Has bad back and bad joint condition. Many times she sleeps until noon. She been on morphine since the accident. Should could live 20 years but she thinks she won't because of the pain she is in.

[JPhillips]

That's enough money to make it worthwhile to work with a professional advisor, IMO. We've been working with someone handling some inheritance that we're going to use as college money. He had a lot of knowledge and options that I wouldn't have thought of on my own.

[TCY Junkie]

Originally Posted by JPhillips

That's enough money to make it worthwhile to work with a professional advisor, IMO. We've been working with someone handling some inheritance that we're going to use as college money. He had a lot of knowledge and options that I wouldn't have thought of on my own.

Their current advisor put them in something earning 0 percent as 1 percent earning and 1 percent income rider fee. He also said it was stupid to get money out of it until after surrender which would cost them significantly. He gets to keep his commission so basically they paying part of surrender fee because of him, yet they absolutely love the guy that try to cost them almost 100k waiting until surrender over and if nothing changed 293k after 10 years.

I did get her to meet with american national guy whos company has new annuity but she wants to work with guy because he worked for free last few years. Guy just repeating he makes no money keeping them in rider and he recommend staying in it. Met with him in April and he wasn't open to new annuity until I said it made me want to put my head in the oven making no money on the annuity and he finally recommended it in writing. He made 34k to 43k on their deal and has worked less than 3 weeks in 6 years, not only he get paid he got grossly overpaid for what he put them in.

[Edward64]

Originally Posted by TCY Junkie

Would it be dumb to after they sell house to put that 100k or most of it in an annuity earning around 5 percent. Probably leave them with about 60 to 80k at minimum after taking trip and helping their son. Their tax deffered annuity should be closer to 600k than 500k in 3 years and can take 10 percent out without penalty.

Sorry, I do not know the ins-and-outs of annuities and know I'm not qualified to share the pros/cons of annuity vs some other investment.

I will say that I personally would not consider an annuity because I am more on the aggressive risk profile. But it sounds like she is pretty conservative.

A thought ... maybe post to r/personalfinance and ask your question? There are many knowledgeable people out there and may be able to give you more options to consider?

[JPhillips]

We're getting 5% or so just in a high-yield savings account so that we can pull it out as college bills come in and then some of it in stocks for use over the 24-27 period.

You're right that they should be getting a few percentage points just in a savings account.

[Edward64]

Originally Posted by JPhillips

We're getting 5% or so just in a high-yield savings account so that we can pull it out as college bills come in and then some of it in stocks for use over the 24-27 period.

You're right that they should be getting a few percentage points just in a savings account.

You may have considered this already ...

We created an eTrade brokerage college fund for the kids and didn't do much on 529. If I had to do it over again, I'd do more 529 and put any excess into eTrade. 529 gives you tax free growth & withdrawal which is fantastic if you have a long timeline.

At an average of 8% return per year, the Rule of 72 says you should double your money in 9 years.