Here's an email I recently received from a reader:
I am asking a question on behalf of my mother. She is 75 years old, retired and lives alone in a rented apartment, having sold the family home within the past year. She faced the classic "house rich, cash poor" situation, went into some debt and felt forced to cash in her retirement account to contend with merciless repairs and maintenance on the house, until finally having to sell the place. So: she has NO separate retirement savings, no pension, no longterm care insurance. She collects social security and her sole asset is now the proceeds from the sale of the house, which, after estimated taxes, amounts to approximately $650K. Decent amount, but how to best make that work for her and last for her remaining (20+) years?
She hired a fee-only CPA/financial planner to handle her complex tax situation this year, to analyze her expenses, and to devise a sound investment plan for this nest egg from the property-sale.
Here's the plan, in brief:
To match her expected annual expenses (accounting for super-high housing costs in the area where she lives, inflation, etc.) of an estimated $46K with an annual income of roughly $49K to come from:
Sources of Income:
(1) Proposed annuity - $1500/month ($18K annual withdrawal).
(2) Proposed stocks/bonds allocation- $1600/month ($19K annually, assuming 5% withdrawal, 5%returns, 3%interest).
(3) Social security - $1000/month ($12K annually).
Of the $650K, the suggested breakdown for proposed investment product allocation is:
(1) $290K - Fixed Index Annuity Contract, with guaranteed income rider. Specifically, Guggenheim Partners' Security Benefit "Total Value Annuity" is recommended by the advisor, with allocation among several interest crediting options within the contract.
(2) $360K - Invested and allocated among several Vanguard stock and bond index funds, with emphasis on income.
This plan seems reasonable and appropriately conservative at first glance. The $360K will be relatively liquid, in case of any unforeseen health (or other) crisis. I don't fully comprehend all the ins and outs of annuities, but I'm starting to get the picture of how an annuity and its guaranteed income might work for her as a financial base. I'm not sure how to evaluate this particular choice (Security Benefit TVA) against competitive products. I trust her advisor but want to do some due diligence to both understand and endorse this plan for my mother's financial future.
I wonder if you have any feedback about this proposal, this specific annuity/company, or questions that you suggest we consider before she signs on the dotted line soon?
What's your advice for her?