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04-29-2009, 11:53 AM
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#1 |
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Lifetime annuity to gap Social Security?
I was given a hypothetical problem in class and I'm not really sure how to go about it. In summation, there is a married couple in their early 60's with 3 adult children who live on their own and are married with kids. Their home is paid for but since the market crashed they only have $400K left in retirement income. They do not have pensions and SS will not cover all of their expenses. What is the best way to go about covering that gap (it is very open-ended that is why there aren't many details). My best guess is a lifetime annuity, but I am not sure how much to put into it and what to expect out of it. Any input is greatly appreciated!
edit: The husband is hoping to retire in the next few years and the wife is a homemaker. Last edited by lassise : 04-29-2009 at 12:18 PM. |
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04-29-2009, 12:11 PM
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#2 |
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His and hers: Wal-Mart greeters!
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04-29-2009, 12:30 PM
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#3 | |
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Quote:
While that is an option many take, I was hoping for retiring within the next couple of years. |
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04-29-2009, 12:53 PM
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#4 |
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Retirement in the next couple of years would be impossible, unless they want to live extremely modestly. The man has to continue working until they rebuild retirement savings to a level they can live with, and it's possible she may have to work, too.
Now, as to modest living -- if this couple were in, say, Los Angeles, they are probably sitting on a fortune in a paid-for home. They should sell, even though real estate prices are down, and buy (cash) a house in a cheaper part of the country, such as Enid, OK, or Tifton, GA. If they are sitting on a million dollars in home equity, for example, they can take even $200k of that to buy a really fantastic home in a cheap part of the country, and have $800k to add to their retirement kitty.
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04-29-2009, 01:32 PM
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#5 |
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Is this a hypothetical or is it you? It seems a bit ambiguous now.
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04-29-2009, 02:02 PM
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#6 | |
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Quote:
Yeah it is a hypothetical, it is for an assignment and I need some guidance as to where to start. My ideas were setting up a fixed annuity to guarantee income on top of SS, selling the house, and moving into a retirement home while still being invested in the market with the money from the sale of the house and the leftover that wasn't put into the annuity. |
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04-29-2009, 02:19 PM
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#7 |
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OK, as a teacher I am philosophically opposed to doing someone else's homework for them, but in case you need a resource site to check annuity payouts, try this:
http://www.aigretirementgold.com/vl...e=RequestaQuote
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04-29-2009, 03:06 PM
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#8 |
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Blixet -- I agree about the ethics of this.
But I will give the student something to think about -- sometimes, a good outcome is not necessarily the most desired outcome. The people want to retire in a few years, but the economy crashed, their investments tanked, etc. The good news is, they are not dead and they are not destitute. Somewhere between death/destitution, and dreams that have gone up in smoke, lies a wide variety of good outcomes.
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"Wealth is the slave of a wise man. The master of a fool." -- Seneca |
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04-29-2009, 03:12 PM
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#9 | |
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Change good to bad and you've got the beginnings of a great country western song. 
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04-30-2009, 12:32 PM
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#10 |
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If they plan to stay put as long as they can, go for a reverse mortgage to fill the gap. They can keep the $400k in 'reserve' for growth and emergencies. Now, reverse mortgages ain't cheap, but neither are annuities. And at least with a reverse mortgage, you have cash left!!
How's that for a gap filler? |
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04-30-2009, 04:43 PM
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#11 |
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Do not start taking SS retirement benefits at age 62.
Delay that action until FRA or later. If you are currently in your higher income earning years why not stay there until age 70? |
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05-03-2009, 09:12 PM
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#12 |
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You can take a reverse mortgage in the form of a lifetime annuity (most don't) which might be a good option for this hypothetical couple. The key (as noted above) is they need to stay in the home for a good while (at least 6 years) to adequately amortize the upfront costs.
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