Liquidity Event for 82-year old

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Topic Author
epoche
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Liquidity Event for 82-year old

Post by epoche »

At her request, I have been working (a years-long project!) with an aging relative to get her financial situation in order. She has durable PoA and will in place. She has recently sold her home and is now in a stable rental situation near to a child who provides some physical (not financial) assistance. No debt. Normally, she owes no taxes. This year, she will owe capital gains on the house sale, which have already been estimated and subtracted from the below cash position. Before my involvement, she had spent down all her retirement and other accounts, leaving her only with monthly income from SSA and pensions. She was receptive to getting her expenses just below her income. The house sale has created liquidity that we would like input on how to invest and allocate for spending for the remainder of life. She would like to increase her food and misc categories of spending. Female, age 82, rated poor to fair health for age (life expectancy calculators show between 86-91), resident of Virginia. Her main hobby is unfortunately shopping, which makes up a large portion of the misc category. Not listed under expenses are irregular repairs for an 18-year old car. Minimal desire to leave inheritance. Primary goals are improved standard of living, health maintenance, not requiring financial assistance from children, and planning for potential for assisted living facility if eventually needed. She has no LTC insurance or life insurance. As a start, will be putting max allowed into I-bonds each year, but other investment and withdrawal strategy advice will be much appreciated.

Income:
SSA: $1166
Pensions: $1195
Total = $2361

Monthly Expenses:
Rent: $995
Electric: $198 avg
Water/Trash: $51
Cable: $78
Medicare Premium: $187
Advantage Premium: $29
Auto Insurance: $54
Gas: $60
Food: $200
Medicine: $200
Misc: $300
Total = $2352

Cash (Checking and Savings):
$260000

Thanks for any input.
Soon2BXProgrammer
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Re: Liquidity Event for 82-year old

Post by Soon2BXProgrammer »

How much money a month does she need to not feel "tight" in the budget and enjoy her life?
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Topic Author
epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

Soon2BXProgrammer wrote: Sat Aug 13, 2022 3:30 pm How much money a month does she need to not feel "tight" in the budget and enjoy her life?
She has not provided a specific amount. Probably $300-600 extra per month than what she is spending now would do it.
She essentially looks at what is available to her in her account and spends it all, usually in the first 2-3 weeks of every month.
She had us set up a separate account that funds all other necessary expenses and gives her access to the monthly allocation for Food, Gas, and Misc.
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arcticpineapplecorp.
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Re: Liquidity Event for 82-year old

Post by arcticpineapplecorp. »

epoche wrote: Sat Aug 13, 2022 3:07 pm This year, she will owe capital gains on the house sale, which have already been estimated and subtracted from the below cash position.

Cash (Checking and Savings):
$260000
Was the sale of real estate a rental property or was it a prior primary residence for 2 of the last 5 years?
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Soon2BXProgrammer
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Re: Liquidity Event for 82-year old

Post by Soon2BXProgrammer »

epoche wrote: Sat Aug 13, 2022 3:42 pm
Soon2BXProgrammer wrote: Sat Aug 13, 2022 3:30 pm How much money a month does she need to not feel "tight" in the budget and enjoy her life?
She has not provided a specific amount. Probably $300-600 extra per month than what she is spending now would do it.
She essentially looks at what is available to her in her account and spends it all, usually in the first 2-3 weeks of every month.
She had us set up a separate account that funds all other necessary expenses and gives her access to the monthly allocation for Food, Gas, and Misc.
/shrug $600/mo out of 260k is a very low withdrawal rate for someone who is 82.

I'd consider something like:
1 years spending in cash...
1 years spending in 1 year bonds,
1 years spending in 2 year bonds,
1 years spending in 3 year bonds,
1 years spending in 4 year bonds,
1 years spending in 5 year bonds
(maybe another year or two in this same pattern),
and then the rest in equities with dividend reinvestment turned off, and the dividends being sent to the cash account. (assumption is her spending will go up over time, and she will need a bit more then the bonds maturing)

if she has to go to a LTC facility, she will just have to burn through her assets until Medicaid kicks in. If she needs LTC, i would immediately re-evaluate the portfolio risk tolerance.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

arcticpineapplecorp. wrote: Sat Aug 13, 2022 3:44 pm Was the sale of real estate a rental property or was it a prior primary residence for 2 of the last 5 years?
Primary 2/5. Estimated taxes are after accounting for Sale Price - Selling Expenses - Adjusted Cost Basis (including improvements that we could document) - $250k exclusion. She had refinanced multiple times and did have a mortgage that was paid off at sale. The home was owned for 40 years, so has experienced significant appreciation. She is divorced, but her ex-husband gave her his portion of the house in the settlement years ago. As far as I can reconstruct, she now owes taxes on all of his portion as it was not structured as a sale of 1/2 of the house to her.
Topic Author
epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

Soon2BXProgrammer wrote: Sat Aug 13, 2022 3:47 pm
epoche wrote: Sat Aug 13, 2022 3:42 pm
Soon2BXProgrammer wrote: Sat Aug 13, 2022 3:30 pm How much money a month does she need to not feel "tight" in the budget and enjoy her life?
She has not provided a specific amount. Probably $300-600 extra per month than what she is spending now would do it.
She essentially looks at what is available to her in her account and spends it all, usually in the first 2-3 weeks of every month.
She had us set up a separate account that funds all other necessary expenses and gives her access to the monthly allocation for Food, Gas, and Misc.
/shrug $600/mo out of 260k is a very low withdrawal rate for someone who is 82.

I'd consider something like:
1 years spending in cash...
1 years spending in 1 year bonds,
1 years spending in 2 year bonds,
1 years spending in 3 year bonds,
1 years spending in 4 year bonds,
1 years spending in 5 year bonds
(maybe another year or two in this same pattern),
and then the rest in equities with dividend reinvestment turned off, and the dividends being sent to the cash account. (assumption is her spending will go up over time, and she will need a bit more then the bonds maturing)

if she has to go to a LTC facility, she will just have to burn through her assets until Medicaid kicks in. If she needs LTC, i would immediately re-evaluate the portfolio risk tolerance.
Agreed that it is a low withdrawal rate. But that is only her not feeling "tight" and spending more on what she currently enjoys. We have begun to explore how she can expand her imagination about what an enjoyable life would look like. Travel to visit more distant family is something she has expressed a desire for but has not undertaken. There are some challenges to extended travel given her health. More services devoted to health maintenance would likely lead to increased quality of life, but is not something she has previously had resources to support. Finding a reasonable withdrawal rate to frame her imagination would likely be useful.

Thanks for the bond ladder; this type of liability-matching framework is helpful. What mix of bonds: Treasury Bills and Notes, TIPS, Corporate, Munis, etc.?. All would be held in taxable accounts. Her pensions are not inflation-adjusted, only the SSA portion of income.

Agree on LTC re: Medicaid and re-evaluation. LTC seems highly likely at some point given her health.

Many thanks.
Herekittykitty
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Re: Liquidity Event for 82-year old

Post by Herekittykitty »

immediateannuities.com is showing $100,000 gets $1,024 a month for life starting in one month for an 82 year old woman living in Virginia.

Not inflation indexed.
I don't know anything.
Soon2BXProgrammer
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Re: Liquidity Event for 82-year old

Post by Soon2BXProgrammer »

epoche wrote: Sat Aug 13, 2022 5:01 pm Thanks for the bond ladder; this type of liability-matching framework is helpful. What mix of bonds: Treasury Bills and Notes, TIPS, Corporate, Munis, etc.?. All would be held in taxable accounts. Her pensions are not inflation-adjusted, only the SSA portion of income.
I'd just buy treasuries or bank CD's etc, if you want to keep "safe money" father then 6ish, years, you might just hold a bond fund for that.

It isn't meant to be exact, just close enough to equate to her spend.

If she wants to spend more then the 600/mo, what number does she want to spend?

Maybe consider using a tool like https://www.newretirement.com/ or the advisor that charges a couple hundred bucks and you get emoney (i always forget his name but its posted about here quite a few times). (there are also free tools via the bogleheads wiki, i'm just not an expert in them)

So that you can model the plan, and see what level of spending and for how long gives you various levels of success.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
delamer
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Re: Liquidity Event for 82-year old

Post by delamer »

Herekittykitty wrote: Sat Aug 13, 2022 5:16 pm immediateannuities.com is showing $100,000 gets $1,024 a month for life starting in one month for an 82 year old woman living in Virginia.

Not inflation indexed.
This is an excellent suggestion. She could even cut the annuity back to $50,000, still get a significant bump-up in her standard-of-living, and have $210,000 for potential assisted living costs.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
RetiredCSProf
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Re: Liquidity Event for 82-year old

Post by RetiredCSProf »

Car: I think the 18-year old car is a potential problem, both for financial (cost of repairs) and safety reasons. As a 74-year old driver, I really appreciate all the extra bells and whistles on my new car that make me feel safer when I'm driving. Also, it's a PHEV, so I spend only about $60 per year on gas.

Retail therapy: Is she shopping for herself or others? Given that she recently downsized from a home to a rental, I would think that she is less motivated to accumulate stuff.

Food: No way could I get by with only $200 per month on food
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Re: Liquidity Event for 82-year old

Post by JakeyLee »

Epoche,
My father turned 80 four years ago. His numbers are very similar (he has higher SS but no pension).. he had approximately 380k in investments, with similar withdrawal rate. After going around and around he announced that he’d put everything into Wellesley, with two years expenses in Vanguard money market for expenses. I dunno, it seems to be just fine. He realizes he might have a few down years. But he also knows that even if he put all his money into a savings account, he’d likely get 20-25 years. It’s largely worked out because of the simplicity. Meh, something to think about . I’m sure people will tell me I’m an idiot. I’m used to it . But the important thing is he’s happy.. and he will just fine.
“On balance, the financial system subtracts value from society” | -John Bogle
jello_nailer
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Re: Liquidity Event for 82-year old

Post by jello_nailer »

RetiredCSProf wrote: Sat Aug 13, 2022 9:16 pm
Food: No way could I get by with only $200 per month on food
No kidding - it would be more like $230, $200 for scotch and $30 for Ramen noodle packs and cans of tuna.

Unless she has my diet above, has to spend more on food...
Herekittykitty
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Re: Liquidity Event for 82-year old

Post by Herekittykitty »

RetiredCSProf wrote: Sat Aug 13, 2022 9:16 pm ......Food: No way could I get by with only $200 per month on food
I was thinking the same. How is her nutrition?

Maybe it is fine but if it could use some improving, could she get home delivered meals such as meals on wheels? Could she get to the senior center for the meals served there? Both cost something but it looks like she has assets that could be used for that. There may be a senior ride service she could take to and from the senior center if getting back and forth in her car becomes an issue. In fact, she might find she likes it at the senior center and while she is there she isn't overspending somewhere.
I don't know anything.
7eight9
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Re: Liquidity Event for 82-year old

Post by 7eight9 »

RetiredCSProf wrote: Sat Aug 13, 2022 9:16 pm Car: I think the 18-year old car is a potential problem, both for financial (cost of repairs) and safety reasons. As a 74-year old driver, I really appreciate all the extra bells and whistles on my new car that make me feel safer when I'm driving. Also, it's a PHEV, so I spend only about $60 per year on gas.

Retail therapy: Is she shopping for herself or others? Given that she recently downsized from a home to a rental, I would think that she is less motivated to accumulate stuff.

Food: No way could I get by with only $200 per month on food
It depends on where you live and what you eat. We live in Las Vegas. My wife and I have spent an average of $290/month (TTM July 2022) on food.
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BL
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Re: Liquidity Event for 82-year old

Post by BL »

With a car she can probably get to a sr. center for meals which is great also for socializing, a very important item if she lives alone. I agree that she should not be skimping on food, as she has plenty of money for essentials and some "fun" spending. Maybe she can trade off some of her shopping splurges for good food or other good things.

Ten percent a year from her cash would last 10 years, probably more than a lifetime. 6-8% would allow more cushion. Check costs for assisted living in your area. This could be a future base cost.

I like I-Bonds plus using the money market fund (now at 2.1% interest) at Vanguard as a home base while buying 3, 6 (3.028% tomorrow), 9, 12 month, 1.5yr, 2yr Treasury Bills/notes, (no state tax) and/or 1-2 yr CDs there; they will automatically return to MM when mature as will any dividends. The short terms might make a lot of work for you, but leaving in MM instead of the very short terms is reasonable, too.

A new car sounds good, but bear in mind that some new features can be confusing to an older person, depending on how she responds to these things. I am glad we bought a new car a few years ago, as some of these things can be a hazard if you have to learn new critical things in emergency situations. Waiting won't improve this; finding a gently used car with the most critical safety improvements might work. Easy entry, proper seat and window adjustments, good visibility, and rear camera, are a few things to look at for comfort and safety. Is there public transportation or Uber-style rides available? Taking the AARP drivers safety course in person or online might be a good thing; it also usually gives you a discount on car insurance as well. Does she do a lot of driving? How far?
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Re: Liquidity Event for 82-year old

Post by Circe »

I agree that the newer cars have more safety features. Getting used to a new car takes time when you're older. My Outback has some great features, but for example, the radio went from simple buttons to being far more complex to operate.

However, should buying a newer car be a priority for an 82 year old in poor to fair health? What is the realistic age that this person should no longer be driving? Insurance would also cost more.

Are there other solutions -- public transit, county/town assistance for elderly, walking, uber?
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Re: Liquidity Event for 82-year old

Post by tunafish »

jello_nailer wrote: Sat Aug 13, 2022 9:31 pm
RetiredCSProf wrote: Sat Aug 13, 2022 9:16 pm
Food: No way could I get by with only $200 per month on food
No kidding - it would be more like $230, $200 for scotch and $30 for Ramen noodle packs and cans of tuna.

Unless she has my diet above, has to spend more on food...
Yes, that struck me also. Lately I rack up $80 to $100 a week in the grocery store despite changing to store brands, not buying frozen dinners, making stuff from scratch, etc. Of course, some of that is not food but laundry detergent, paper products, etc. and inflation has really shown up there. Maybe some of the misc. category is grocery store non-food items.
cjcerny
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Re: Liquidity Event for 82-year old

Post by cjcerny »

I would keep it super simple. I would put all her money in Wellesley. Odds are she could withdraw 6-8k a year forever and never see her balance dwindle. If she’s okay with seeing it dwindle, she can withdraw more.
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Re: Liquidity Event for 82-year old

Post by tunafish »

Circe wrote: Sun Aug 14, 2022 6:06 am I agree that the newer cars have more safety features. Getting used to a new car takes time when you're older. My Outback has some great features, but for example, the radio went from simple buttons to being far more complex to operate.

However, should buying a newer car be a priority for an 82 year old in poor to fair health? What is the realistic age that this person should no longer be driving? Insurance would also cost more.

Are there other solutions -- public transit, county/town assistance for elderly, walking, uber?
I would in an instant go back to my previous older much simpler car if I could. Unfortunately it reached needed replacement stage. Please do not inflict a car with twenty times as many controls (and more expensive repair charges) on an older person.
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Re: Liquidity Event for 82-year old

Post by Mike Scott »

A balanced retirement "income" fund with dividends sent to checking to spend. Income taxes on the dividends should be essentially 0. If she is still driving safely, a replacement "last" car might be a worthwhile expense. Is there local car service? What would that cost compared to the expense of keeping her own?
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epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

RetiredCSProf wrote: Sat Aug 13, 2022 9:16 pm Car: I think the 18-year old car is a potential problem, both for financial (cost of repairs) and safety reasons. As a 74-year old driver, I really appreciate all the extra bells and whistles on my new car that make me feel safer when I'm driving. Also, it's a PHEV, so I spend only about $60 per year on gas.

Retail therapy: Is she shopping for herself or others? Given that she recently downsized from a home to a rental, I would think that she is less motivated to accumulate stuff.

Food: No way could I get by with only $200 per month on food
The car is a concern; unpredictable, irregular, relatively large repairs that she views as emergency issues. She is in a fairly rural area, so transportation options are limited, but we are looking into senior services that may help with this. Based on health and other issues, it seems likely she will not be able to continue to self-drive indefinitely.

Her biggest thrill in life is scoring what she views as a bargain. Anytime anyone visits, she has boxes of things to give to them that they don't need or want. We have tried to discourage this, but it is the thing she takes pleasure from. My mantra for her is: "you didn't save any money if you buy something you or we won't use, no matter how cheap." This has been largely curtailed in the last few years because she had truly been living with no savings cushion before the house sale, but I have noticed some new acquisitions recently.

The food budget is only what I can definitely ascribe to debit card purchases I see at her local grocery store. I know she shops at another discount grocer but uses cash there. So some food is falling into the misc category. A small piece of luck is that bargains on food items fall into the shopping pleasures for her. She almost never eats out. Her regular medical reports don't note nutrition deficiencies, and her fridge always seems stocked.
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epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

BL wrote: Sun Aug 14, 2022 1:50 am With a car she can probably get to a sr. center for meals which is great also for socializing, a very important item if she lives alone. I agree that she should not be skimping on food, as she has plenty of money for essentials and some "fun" spending. Maybe she can trade off some of her shopping splurges for good food or other good things.
I think regular visits to a senior center would be one of the best things she could do to improve her quality of life through socializing and the meals available there. She has been resistant to this in the past, but I will redouble efforts to encourage her to try it out. There are several senior centers within a 20-mile radius so at least one is likely to be a good fit. It may also help to incentivize her to start using transportation other than her car if they have this available.
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epoche
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Re: Liquidity Event for 82-year old

Post by epoche »

JakeyLee wrote: Sat Aug 13, 2022 9:18 pm Epoche,
My father turned 80 four years ago. His numbers are very similar (he has higher SS but no pension).. he had approximately 380k in investments, with similar withdrawal rate. After going around and around he announced that he’d put everything into Wellesley, with two years expenses in Vanguard money market for expenses. I dunno, it seems to be just fine. He realizes he might have a few down years. But he also knows that even if he put all his money into a savings account, he’d likely get 20-25 years. It’s largely worked out because of the simplicity. Meh, something to think about . I’m sure people will tell me I’m an idiot. I’m used to it . But the important thing is he’s happy.. and he will just fine.
I like your and other suggestions to just use a simple balanced fund. Will likely keep at least 2 years expenses in MM or Treasuries and do something equivalent to a balanced fund with the rest.

Any thoughts on using something indexed like VTINX versus an active fund like Wellesley in a taxable account?
JDave
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Re: Liquidity Event for 82-year old

Post by JDave »

The value of annuities can be more than financial - can be psychological as well. It's reassuring to know that no matter what happens, and no matter how long you live, that monthly payment will be coming in. I don't have the link, but there was a study showing the elderly were more likely to spend the cash coming in from an annuity that from a retirement portfolio because they worried about running out of portfolio money.
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Re: Liquidity Event for 82-year old

Post by quietseas »

I'd consider looking for a month to month, senior apartment (independent living) that provides one main meal per day and will provide some group transportation to grocery stores and medical appointments. These types of facilities are widely available in most parts of the country, even in more rural counties. Some have income qualifications; others do not.

Even if the rent is a little higher than the rent in this apartment, being around other people, having the staff there to help in an emergency, and some group events will help her out both socially and help the family members who would otherwise have to do these tasks.

I would not recommend an SPIA for someone who is likely to end up in a Medicaid long term care facility. Spend down her assets and use the safety net unless you are planning to cover the cost yourself.
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David Jay
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Re: Liquidity Event for 82-year old

Post by David Jay »

delamer wrote: Sat Aug 13, 2022 6:01 pm
Herekittykitty wrote: Sat Aug 13, 2022 5:16 pm immediateannuities.com is showing $100,000 gets $1,024 a month for life starting in one month for an 82 year old woman living in Virginia.

Not inflation indexed.
This is an excellent suggestion. She could even cut the annuity back to $50,000, still get a significant bump-up in her standard-of-living, and have $210,000 for potential assisted living costs.
Let me be the third to echo this sentiment. Not only does it afford her the increase in standard of living that she desires but it also puts a monthly "limit" on her spending. She gets a check every month and that is what she is free to spend.
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Re: Liquidity Event for 82-year old

Post by Circe »

Quietseas makes good sense. This is what I think I would want if I were in that position. I didn't realize that she was in such a remote location. Either a senior community or an apartment that was more walkable would be better. I have a much older friend (87) who has lived in independent living in a CCRC for years and she no longer likes to walk to the main building, so there are limitations on walkable also. My friend knows that she is much better off doing that walk as long as she can.
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Re: Liquidity Event for 82-year old

Post by tunafish »

JDave wrote: Sun Aug 14, 2022 1:06 pm The value of annuities can be more than financial - can be psychological as well. It's reassuring to know that no matter what happens, and no matter how long you live, that monthly payment will be coming in. I don't have the link, but there was a study showing the elderly were more likely to spend the cash coming in from an annuity that from a retirement portfolio because they worried about running out of portfolio money.
I worry about forking over money for an annuity. What about if the company goes bankrupt?
7eight9
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Re: Liquidity Event for 82-year old

Post by 7eight9 »

tunafish wrote: Sun Aug 14, 2022 2:06 pm
JDave wrote: Sun Aug 14, 2022 1:06 pm The value of annuities can be more than financial - can be psychological as well. It's reassuring to know that no matter what happens, and no matter how long you live, that monthly payment will be coming in. I don't have the link, but there was a study showing the elderly were more likely to spend the cash coming in from an annuity that from a retirement portfolio because they worried about running out of portfolio money.
I worry about forking over money for an annuity. What about if the company goes bankrupt?
Annuities are regulated and protected by nonprofit insurance guaranty associations at the state level. These state guaranty associations will pay claimants in the unlikely event that an insurance company becomes insolvent and cannot pay. Coverage is limited and varies by state. The typical statutory coverage limit is $250,000.
https://www.annuity.org/annuities/regul ... ociations/
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