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November 27, 2007


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My in-laws are nearing retirement now and going through the final planning phases. On #3 above, one thing they realize is that they won't be able to move from their 4 Bedroom, 2100 square foot home of 37 years into a 2 bedroom 1000 square foot apartment. They are planning on downsizing in stages a few years apart until they get small enough. They may even do the first downsize while still working yet in order to get a head start.

The good thing, whenever they buy smaller, they will have enough equity in their home to pay cash if they wish and then the rest can get added to the retirement accounts and start earning some more interest while they prepare to make the next move in a few years.

I think you've got enough info to know that an annuity is a TERRIBLE 'investment'. Rip-off, Con, call it what you want - it's true. FMF - Since you said you didn't have enough info, though, maybe it's a good future post topic. I'd love to hear what you have to say after doing the research on this piece of crap.

Annuities -- they are good for exactly one thing, insuring against unplanned-for longevity. That insurance only has actual value from the time you expect to die and afterwards. The present value of that insurance consequently increases as you approach the end of your life expectancy. So while an annuity is verifiably a terrible investment for a young or middle aged person, it becomes increasingly attractive for people approaching what they expect to be the end of their life.

Pip --

Yep, it's on my list for a future post. (On a day I can't come up with anything else.) ;-)

Whilst I certainly don't intend to rely on one, I might take out a reverse mortgage once I'm retired for the extra cash. Assuming that I have no intention of leaving any money to anyone in particular, what would be the harm?

In the UK, by the time you reach the age of 75 you essentially have to have bought an annuity with your tax-deferred retirement funds. It's the sort where you pay a lump sum and they give you an income. The income can either be fixed or increase with RPI or increase at a fixed rate each year.

In theory I agree with you that reverse mortgages are not the best idea. However, a reverse mortgage is the correct choice in certain situations - when there is no other choice. It is easy to say an effective downsize will lead to no need for a reverse mortgage. But what about when the senior is as downsized as they can go? What about emotional attachment to a home they have lived in for 40 years?

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