Retirement advice for my mom?

[v-girl]

My has a chunk of change that needs to be invested. She looked into doing an annuity, but has hesitations. I think (and my brother's MIL - friend of mom's - agrees) that she should put it down on her house. It would shorten the time left to pay it off and she could probably refinance for a lower payment. Any thoughts? I know nothing about annuities. This one sounds too good to be true. I don't see how they can promise 6.74% in a check every year.

[spotty_dog]

A single payment immediate annuity is a really nice situation for a retired person who's nervous about outliving their money and has no need or hope to pass their estate to heirs. You have to choose the company carefully, because the payment will live only as long as the business that promised it, but basically the way they can offer that payment is a lot like an insurance actuarial decision. The company is betting that your mom won't live very long, to be crass about it, and if she doesn't they pocket the remainder and "win". If she lives to a healthy and happy 100 years (and may she!) then she "wins" because she will probably get more payout with less headache than if she managed it herself. Here's a good resource on the subject: http://www.bogleheads.org/wiki/SPIA

What interest is she currently paying on the house, though?

[v-girl]

Thank you!

She owes $77K. I think her interest is probably a little high but I don't know what it is. We have the same house in different neighborhoods. She bought in '96, I bought in '98. I owe $63K. We paid close to the same price. She did do a home equity to do some home improvements since it is her dream house (we never planned to stay in our house that long).

She is 70, but that's young in her family. Both of her parents lived into their late 90s.

[v-girl]

It's insured by American General Life Insurance.

[spotty_dog]

OK, so I think this might be a variable annuity. I'd look a lot closer at what they take and what they promise.

[v-girl]

Ok. Thank you so much! She has a friend who is a financial planner, but he's been sick and isn't able to work too much, but his wife was going to see if he would be up to looking over the paperwork over the next few days. I wanted to get an idea in case he wasn't able to look at the paperwork in time.

[spotty_dog]

That sounds like a good idea! But...in time for what? Is there a deadline involved?

[v-girl]

I think she signed on but she said she has a week to change her mind.

[spotty_dog]

Oh, I see!! Hrm, hrm!

OK, I see that insurance company also underwrites the SPIA products from Vanguard, which is a point in their favor. I also see that SunAmerica offers SPIAs, which isn't obvious at first from their site. A big lump payment and a guaranteed return are pretty good signals. This is probably a good deal. Except that if she's paying a high interest rate on her mortgage (and possible equity loan), that is a pretty big drain on her retirement income (does she have Social Security?) If the interest is as much or greater than the guaranteed rate on the annuity, I'd pay down the mortgage. But without the big picture...I dunno! I hope the financial planner friend can help!! It's always good to have someone in the know explain what you're getting into.

[v-girl]

That's a good point. Thank you!

She is working right now but just brings home enough to cover her living expenses and bills. We would all like for her to retire. She wants to be able to help me homeschool my kids like my friend's mom does.