Immediate life annuity

What are the opinions of others on this products?

The person it would be for is a 78 year old women, widowed, and social security as the main source of income with supplemental coming from an IRA she was beneficiary of. She only has $25k left in the IRA and I was wondering if it would make sense to annuitize this so she could have a fixed income. After reading about it I have to admit it sounded good but I have a poor perception of annuities for some reason and I can't seem to shake that.

Thoughts?

Lifetime Income annuities are an incredible tool for many retirees. My concern here is the lack of liquidity. Although she could never draw the same guaranteed amount without annuitizing, putting the only $25k she has into the annuity could cause some serious hardships in cash flow.

First of all, she only has 2 options for payout at her age to keep the annuity from being valued as a lump sum for medicaid. These options are "life only" or a period certain such as 10 years that guarantees a return of the entire principal without exceeding life expectancy per IRS mortality tables.

Life only (it ends when she goes, no return of funds) would pay around $225 and be taxed as income, which may effectively be zero for her age and financial position. 10 year period certain (payments continue after death until the full 10 years from the annuitization date have been paid out) would pay about $190 per month. Life only would be the better choice here, because medicaid qualification would most likely be conditional upon the state being named beneficiary for any remaining payout.

If $100-$125 additional income per month guaranteed for life would help her maintain a worry free attitude it would be a good move. This way, you would only have to annuitize half of the $25k IRA and leave the othe half liquid. Again, my worry is annuitizing all of her liquid assets.

notinthebiz, annuities are tools like everything else in finance. The same exact annuity (any annuity regardless of type) can be the best thing ever, great, good, no big deal, not good, terrible and/or criminal. In other words. It's not the annuity itself that is bad, it is each client's personal suitability and fit that is good or bad. Unfortunately, many times the square annuity is forced into the proverbial round hole.

I see your concern but this $25k is only being used as supplemental $1300 annually (minimum required distribution). I think she would be very happy with just knowing $xxx amount will be there for her each month and not have to worry if the market hurt her principal.
Not having the liquidity there incase of an emergency is really a double edge sword because if she had to liquidate for some reason her monthly cash flow would stop which is just as bad as not having liquidity at her age.

It's a hard thing to think about but I just want to have a few options for her.

Her suggestion was just to put it into a Bank IRA-CD and let it earn a guaranteed 3-4%. She's currently down 16% on the year so at this point she wants security.

Thanks for your info.

I see your concern but this $25k is only being used as supplemental $1300 annually (minimum required distribution).Half of the $25000 ($12500) would achieve the same income as she is drawing now (guaranteed for life) and still keep some liquidity ($12500).

Not having the liquidity there incase of an emergency is really a double edge sword because if she had to liquidate for some reason her monthly cash flow would stop which is just as bad as not having liquidity at her age.

Her suggestion was just to put it into a Bank IRA-CD and let it earn a guaranteed 3-4%. The income ($1300 annually) would be totally replaced by the income annuity using only half of the principal. This would allow the current income stream to continue on a guaranteed basis, but still leave her with half of her assets liquid in case there are surprise expenses that reuqire a lump sum.

She can put the other $12500 in her Bank IRA-CD for a rainy day. She can have her cake and eat it too!