Reverse Mortgaging part of your Financial Plan?

[scfr]

Re annuities: Scanner, I believe this is a perfect example of why one size does NOT fit all (not even close in most cases) when it comes to personal finance. I agree with you completely that most (if not all) of the folks who visit this site probably don't need an annuity.

However, I can give you one very specific example from my life to illustrate why in some circumstances an annuity might make sense.

I have a brother who is developmentally disabled. He is a wonderful, kind, loving, hard-working (he holds down a part-time job and helps my mom out) man who is always going to need a little extra help. He should NEVER be given a large amount of cash at one time, as he simply does not have the mental capacity to manage it, and some bimbo might end up sweet-talking him out of it.

In my will, I made arrangements for a Special Needs Trust to be established for him. I have instructed the trustee to look in to the possibilty of purchasing a charitable gift annuity for my brother. They are not obligated to purchase an annuity, and are only to do so if it makes sense financially at the time I die. In this way, I could be assured that my brother would have enough funds to live on for the rest of his life, make things a bit simpler for the trustee (who is also a family member who would be doing it on a volunteer basis), and then when my brother passes any remainder would go to the charity I specified.

I can imagine other scenarios where an annuity might make sense, such as a widow who never learned to manage money and is afraid that it might run out. Or a parent who wants to leave money to a child who is mentally ill.

If everyone in your life is completely capable of managing their finances on their own, then count your blessings my friend.

[humandraydel]

"Why should I buy one of these?"

Really, if everyone here at savingadvice.com wants to pay me $500,000. . .yeah, sure, I'll send you all a check for $2000/month the rest of your life.

And you are exactly right. I mean, you don't think the insurance companies are providing this "service" out of the kindness of their heart, do you??
Of course they are making money from it!

As I said, in most cases an annuity is not necessary. There are a few cases when it could be useful - maybe someone forced to retire at 60 due to (non life threatening) health concerns who isn't sure he's saved enough for retirement. In a situation like that, buying an annuity with PART of his portfolio may not be a bad idea.

[humandraydel]

This seems like some kind of pyramid scheme to me that Met Life and the other players are running on the American public

No wonder our pension system is in trouble. The pyramid is collapsing.

You want the ultimate pyramid scheme? It's called Social Security.

Insurance companies actually HAVE the money they are giving to you. And it was YOUR money. They are just taking on the risks (stock market, inflation, deflation, stagflation) for an attempt to make a profit....and usually they do.

Social Security is taking MY money and giving it to my grandpa. They don't actually have all the money they are promising to pay out. The insurance companies do.

[Ima saver]

Well my house has been paid for a long time. However, I would sell my house and move to something smaller and pay cash for it.

[scfr]

I still don't understand why anyone would buy an annuity.

Sorry to dredge up an old topic, but I read something very interesting in the paper today. It said that in some states, annuities are protected assets in a lawsuit. So, if someone had substantial assets that aren't fully protected by liability and umbrella insurance, an immediate fixed annuity just might make sense as a way to protect your assets. BTW, I am not an annuity salesperson and I don't have one myself! And in fact when an advisor recommended a variable annuity I basically ran for the nearest exit. I'm just saying that there are circumstances where they could make sense to some people.

[Ima saver]

That is a good point scfr. I don't have any annuities either.

[Fern]

This should only be a last-dtich effort if you're running out of money in retirement. They say if you do it before age 70, you may well run out of money. I would prefer not to factor this in to any of my planning.

[Fern]

NO- I do not even consider a reverse Mortgage when choosing retirement, looking at income etc...

I would buy an annuity before I did a reverse Mortgage.

I do think about living expenses... and from that standpoint I have considered

a) paying off current mortgage
b) buying a smaller condo in preferred location
c) buying a second condo in another location with the profits [a)-b)]
d) selling c) when the second location is no longer in the picture.
e) investing proceeds from d), probably into an annuity

If you had the money to invest in an annuity, then you probably wouldn't need to take out a reverse mortgage, since iwth the former you're using funds you already have and with a reverse mortgage you're cashing out the equity accumulated in your home.