Annuity Experts - Help Me Help My Mom

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Topic Author
lostinjersey
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Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

My mom, age 70 widow, is considering buying a "participating, single premium, immediate annuity" from New York Life. Per NYL, this type of annuity provides a stream of guaranteed lifetime income in exchange for a single payment made by my mom. In addition, “participating” means she may receive extra income in the form of a dividend.

Some background: Mom is a farmer's wife, has no investing history or knowledge, and is deathly afraid of the stock market. Her assets consist of a paid off home, some farmland that is rented out, and approximately $700k in CDs, about $400k of which is from a recent sale of land. Her income is about $25,000 from SS and $15,000 from land rent. (She also had $12,000 in land rent from the recent sale, which will now no longer be income). On top of that, she is spending about $10,000 out of the CDs each year.

I have tried without success to get her to consider a target retirement fund or some simple index fund that has a small stock allocation for a portion of her CDs, but she simply refuses. My sibling has proposed the above annuity as a way to replace the $12k of lost income while not "investing in the market." For an annuity investment of $200,000 she will get around $12,000 to $13,000 income per year, depending on the "dividend scale" (which I don't completely understand).

According to NYL's marketing piece, here are some highlights of this annuity:

1. Income paid monthly is comprised of a return of principal portion and a dividend portion. Only the dividend portion is taxable as income.
2. There is a death benefit return of principal (installment refund) paid to beneficiaries in the event Mom would pass away prior to receipt of 100% of principal paid.
3. Income values have a guaranteed income (based on zero dividends paid), an income based on current dividends, and an in-between income showing the middle ground income between zero dividends paid and income based on current dividends paid.
4. She can't outlive this income as even when 100% of the principal has been paid out to her and she is still alive and doing well, her monthly payments continue.

My question for the experts is, how do I determine if this is a good investment? There is no mention of fees in the 12-page brochure, and I know enough about annuities to know they are embedded somewhere. From reading this board I have a distrust of any annuity that's not an SPIA, and this seems to be a modified (i.e. more expensive) version of that. And how can I compare this against CDs and Vanguard Target Retirement Income fund, for example, and help my mom understand the pros and cons of each?
Gill
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Re: Annuity Experts - Help Me Help My Mom

Post by Gill »

Look at a pure single premium immediate annuity without the bells and whistles of the one you are considering. It would give your mother a better return and would make more sense for her.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
bradinsky
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Re: Annuity Experts - Help Me Help My Mom

Post by bradinsky »

Check out Blueprint Income or immediateannuities.com. We actually purchased a multi-year guaranteed annuity (MYGA) from Blueprint. Good people to deal with.
Gill
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Re: Annuity Experts - Help Me Help My Mom

Post by Gill »

bradinsky wrote: Tue Oct 26, 2021 7:29 pm Check out Blueprint Income or immediateannuities.com. We actually purchased a multi-year guaranteed annuity (MYGA) from Blueprint. Good people to deal with.
Agree on Blueprint and they seem to have the best rates.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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lostinjersey
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Re: Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

Thanks for the responses. I did a quick check on both suggested websites and the highest monthly payment for a SPIA ($200k initial purchase) is $1,034 - which is less than the NYL quote. Any idea why that is? I thought it would be higher without all the 'bells and whistles' -- as you said Gill.
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Stinky
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Re: Annuity Experts - Help Me Help My Mom

Post by Stinky »

On immediateannuities.com, I find that a 70 year old female in my state who pays a $300k premium could receive a $1,428 monthly payment on a “life with cash refund” SPIA. That sounds way higher than the NYL quote.

I’d shop around for a SPIA. I also like Blueprint Income as an agent. I’ve bought MYGAs from them.

EDIT - I misread the premium above. For a $200k premium, it’s $952 per month.

So NYL does sound competitive.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
lostinjersey
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Re: Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

Stinky wrote: Tue Oct 26, 2021 7:52 pm On immediateannuities.com, I find that a 70 year old female in my state who pays a $300k premium could receive a $1,428 monthly payment on a “life with cash refund” SPIA. That sounds way higher than the NYL quote.

I’d shop around for a SPIA. I also like Blueprint Income as an agent. I’ve bought MYGAs from them.
Thank you for the help! The NYL quote is for an initial purchase of $200k, and I’m having a hard time understanding how it can yield more than a SPIA with otherwise identical terms. Do you have any idea why that might be?
Gill
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Re: Annuity Experts - Help Me Help My Mom

Post by Gill »

lostinjersey wrote: Tue Oct 26, 2021 7:56 pm
Stinky wrote: Tue Oct 26, 2021 7:52 pm On immediateannuities.com, I find that a 70 year old female in my state who pays a $300k premium could receive a $1,428 monthly payment on a “life with cash refund” SPIA. That sounds way higher than the NYL quote.

I’d shop around for a SPIA. I also like Blueprint Income as an agent. I’ve bought MYGAs from them.
Thank you for the help! The NYL quote is for an initial purchase of $200k, and I’m having a hard time understanding how it can yield more than a SPIA with otherwise identical terms. Do you have any idea why that might be?
Are you sure you didn’t get a quote with a refund feature? You don’t want that for maximum income. How much of the NYL is guaranteed?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
DesertGator
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Re: Annuity Experts - Help Me Help My Mom

Post by DesertGator »

I can't give you a complete answer, but just a few thoughts that I hope are helpful.

* Never buy an investment or financial instrument that you don't understand.
- Tell the sales agent you won't buy until you fully understand the investment, all fees, and all terms/disclosures.
- Check on the rating of the insurer

* Get quotes from additional providers of similar annuities

* Check https://www.immediateannuities.com/ for some quick quotes as a reference

* Consider splitting any SPIA purchase between two or three companies to diversify in case of company failure (note, some times best returns require a minimum investment such as $100k)

* Check her state's annuity protections ($ amount) as a possible upper limit to how much to buy

good luck!
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lostinjersey
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Re: Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

Gill wrote: Tue Oct 26, 2021 8:00 pm
lostinjersey wrote: Tue Oct 26, 2021 7:56 pm
Stinky wrote: Tue Oct 26, 2021 7:52 pm On immediateannuities.com, I find that a 70 year old female in my state who pays a $300k premium could receive a $1,428 monthly payment on a “life with cash refund” SPIA. That sounds way higher than the NYL quote.

I’d shop around for a SPIA. I also like Blueprint Income as an agent. I’ve bought MYGAs from them.
Thank you for the help! The NYL quote is for an initial purchase of $200k, and I’m having a hard time understanding how it can yield more than a SPIA with otherwise identical terms. Do you have any idea why that might be?
Are you sure you didn’t get a quote with a refund feature? You don’t want that for maximum income. How much of the NYL is guaranteed?
Gill
Gill, you're right. I didn't realize I had to turn off the "refund at death" option on the Blueprint website. Thanks for that. The correct income is more like $14,000/yr for an SPIA.

The thing I'm having a hard time with, is this is an SPIA, which means when Mom dies, there's no residual balance. If she'd invested in the Vanguard Target Retirement Income fund, for example, with an assumed 4% annual return, she'd have $8000 in annual income with no erosion of principal. Most years it's been higher than 4%, and of course there are years where it's lost, but this is only a portion of her portfolio so I would think it would make more sense than annuitizing.

Am I thinking about this correctly?
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Stinky
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Re: Annuity Experts - Help Me Help My Mom

Post by Stinky »

Gill wrote: Tue Oct 26, 2021 8:00 pm Are you sure you didn’t get a quote with a refund feature? You don’t want that for maximum income. How much of the NYL is guaranteed?
Gill
Gill asks all of the right questions.

First, what are the “guaranteed”, “current scale”, and “mid point” payout amounts? Personally, I think that NYL, which is a conservative company with the highest possible ratings, is likely to pay something close to the current dividend scale over the lifetime of the annuity. But I’d want to know all of the amounts.

Second, as Gill says, a “refund” annuity will not maximize the payout to your mother. She could get more with a “life” annuity, where payments would cease when she dies.

As to the rest of OPs questions, there are no extra fees or charges. What you see is what you get - Mom pays a premium, and she gets a monthly check. Any “complexity” only comes with the fact that payments may be higher or lower based on the dividends paid.

This IS a SPIA. It is unique only because it has dividends.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Rex66
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Re: Annuity Experts - Help Me Help My Mom

Post by Rex66 »

It’s highly unlikely that you are comparing guaranteed values.
GuyInFL
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Re: Annuity Experts - Help Me Help My Mom

Post by GuyInFL »

Using www.immediateannuities.com for a 70 year old female, I get $1080 per month.

The NYL is very good at $12K - $13K. I'd be looking to make sure it's not up to $12K-$13K.

According to Social Security, a 70 year old female has a life expectancy of 87.4 years.
https://www.ssa.gov/cgi-bin/longevity.cgi

Downside of an annuity is if you pass away, the funds are gone.
Annuities are typically not adjusted for inflation.
Positive side is they continue as long as you are alive.
They also provide a steady source of income.
Pays a higher percentage. 6.48% in the immediate annuities case.


A target fund will vary and have risk of running out.
Most likely a target fund will leave funds to heirs.
Target fund will likely keep up with inflation.
Pays a lower percentage. Most folks would recommend a starting withdrawal of about 4%, perhaps increasing at the RMD rate (although this isn't specifically subject to RMD).
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arcticpineapplecorp.
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Re: Annuity Experts - Help Me Help My Mom

Post by arcticpineapplecorp. »

lostinjersey wrote: Tue Oct 26, 2021 7:02 pm My question for the experts is, how do I determine if this is a good investment? There is no mention of fees in the 12-page brochure, and I know enough about annuities to know they are embedded somewhere. From reading this board I have a distrust of any annuity that's not an SPIA, and this seems to be a modified (i.e. more expensive) version of that. And how can I compare this against CDs and Vanguard Target Retirement Income fund, for example, and help my mom understand the pros and cons of each?
couple of additional points:

1. a SPIA is guaranteed for life if that's the option you choose. The risk is you hand a lump sum over and die soon after (before receiving your money back), if you don't have a survivor benefit, which may cost a little more.

2. Another risk is I don't think there are inflation adjusted SPIAs (I could be wrong). So the $12,000/year may be fine now, but may not be so 15 years from now.

3. They take the lump sum and invest it. That's how the insurance company comes out ahead. They're taking the risk, so you don't have to. And they get the profits and you don't. If you take $12,000 and divide by $200,000 you get 16.6 years of payments before the money runs out. So they've got to make money to keep paying you beyond 86 (if you start at 70). they have 16 years to make money to keep paying you (and hopefully make a profit). Since they're paying $1000 a month, the first month they can invest $199,000 for growth, then $198,000 the second month for growth and so on. I think there's mortality credits too, but I'm not an insurance guy, so don't ask me.

4. the problem with the target date retirement fund in this situation is not just the risk your mom doesn't want to take, but $12,000 from $200,000 is a 6% withdrawal rate. That's a little high if she might live 30 years. 4% or lower is recommended as a withdrawal rate for a 30 year drawdown. So she might run out of money, especially if there are sequence of return risk (bad years and you're withdrawing on top of those declines). Even though the fund is conservatively invested (30/70 for a target date income fund) it's not going to grow very much (maybe 3% a year in the past?). So you might squeeze a few extra years above the 16.6 years taking 12,000 out a year, but not likely another 14 years. So there's a risk of running out of money. You don't have that with the SPIA because the payment is FOR LIFE.

5. One risk with a SPIA is after you hand over the lump sum, you need a large cash infusion for some reason (usually medical, home or car) and then don't have the funds because you can't get them back.

6. Another risk is bankruptcy/default. Check the rating of the insurance company. Also there may be some state guarantee up to a certain amount. So check on your state to see how much they would guarantee in case of default. And insure no more than that with any one company (i.e., if your state insures $100k, you'd have to get 2 SPIAs from two different companies to play it safe).

7. SPIAs aren't really an investment. They're insurance. You're trying to insure against outliving your money. That's ok. There's nothing wrong with SPIAs provided you shop around and get the highest payout and understand whether you get or want a survivor benefit of any unpaid monies and you understand if it's not able to be inflation adjusted and how that will hurt over time.

hope that helps.
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Topic Author
lostinjersey
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Re: Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

Stinky wrote: Tue Oct 26, 2021 8:18 pm
Gill wrote: Tue Oct 26, 2021 8:00 pm Are you sure you didn’t get a quote with a refund feature? You don’t want that for maximum income. How much of the NYL is guaranteed?
Gill
Gill asks all of the right questions.

First, what are the “guaranteed”, “current scale”, and “mid point” payout amounts? Personally, I think that NYL, which is a conservative company with the highest possible ratings, is likely to pay something close to the current dividend scale over the lifetime of the annuity. But I’d want to know all of the amounts.

Second, as Gill says, a “refund” annuity will not maximize the payout to your mother. She could get more with a “life” annuity, where payments would cease when she dies.

As to the rest of OPs questions, there are no extra fees or charges. What you see is what you get - Mom pays a premium, and she gets a monthly check. Any “complexity” only comes with the fact that payments may be higher or lower based on the dividends paid.

This IS a SPIA. It is unique only because it has dividends.
This is super helpful, thank you!
ivgrivchuck
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Re: Annuity Experts - Help Me Help My Mom

Post by ivgrivchuck »

SPIA is a fine annuity. As others have said the participating part is probably costing extra and should probably be dropped.

If you die early you lose money. If you live long you win money. That's the deal, and it makes a lot of sense...
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Rex66
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Re: Annuity Experts - Help Me Help My Mom

Post by Rex66 »

im not sure why one would think that this company will pay the current dividend going forward. EVERY company has been dropping dividends for multiple years. Dividends are mostly talked about with WL but its the same money.
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lostinjersey
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Re: Annuity Experts - Help Me Help My Mom

Post by lostinjersey »

Thanks everyone who chimed in (esp arcticpineapple for the great detailed response). I have a much better grasp now, enough to help my mom understand at a high level. You all are the best. :)
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