Unusual financial/personal circumstances

[Brookswood]

This is one of the oddest financial stories I have ever heard:

Years ago I worked with a good fellow who had an aunt who was widowed but left with a considerable fortune. His uncle had been an astute business man and amassed a net worth of about 2.5 million, back when one million was enough for a life of luxury. Unfortunately, neither of his cousins had even 10% of their father's business sense. The 2.5 million was whittled down to 2.0 million in a few years as his aunt 'helped' her children by paying off their debts and 'investing' in sure thing money makers.

Finally, the aunt recognizing that she would eventually be living a life of the low-income retiree came to my friend and asked what she should do. She was a soft-touch and knew she could not say no to her children. So, the good friend did something he would not normally advise. He had her buy several SPIA's. With the funds annuitized, the possibility of the the children draining mom's account completely was gone. They still tapped her for many thousands every year, but the big rip-off opportunities were gone.

 

[OneEyedDiva]

What are SPIA's?

 

[Brookswood]

Single Premium Immediate Annuity - You give them a lump of money and they immediately start sending you a monthly check. The amount of the check depends mostly on your age and gender, IIRC.

Of course, they get more complicated if you want certain protections, and that reduces the monthly payout.

Please do not assume that I endorse or recommend them for any particular person. It all depends on your situation.

 

[OneEyedDiva]

Was just wondering Brookswood. I've never heard of that variety of annuity. Is it a variable or fixed rate? Just curious. I don't need an annuity since I have a pension and also my SS. I'm glad that lady did that. I hate to read about children and grandchildren taking advantage like that. It's unconscionable!

 

[mathjak107]

it is like buying a cd . an spia is a very simple annuity . it is very low cost .

you are given a draw rate depending on age , whether single or joint and interest rates . that rate can be higher initially than you can draw from your bonds and cash portion on your own but the annuity's are typically not cola adjusted .

they can pay out more to you than you can from yourself because they invest in something you can't . dead body's .

those who die pay for those who live . right now a 65 year old male can see almost a 6% draw rate (not interest) . but unless you have a joint annuity when you die they keep what is left to fund those who live .

the spia's work very well when you combine them with your own investing . they can provide higher income and under more scenario's a bigger balance left for heirs . that balance is bigger and bigger the longer you live .

many times a single spia and a single premium life policy work better with your own investing . that money your spouse gets is 100% tax free as opposed to the spia .