Should by father-n-law get an annuity?

[Vapors]

Hi all. My father-n-law is 68 years old. His wife is 65. He has $200,000 in a traditional IRA that he currently has in a money market account that he earned a little over 4% on last year. He IRA is with John Hancock and his rep there is suggesting he roll his money into a fixed annuity.

The annuity would guarentee 5% a year but could make more depending on his investment options.

Is there any reason why he shouldn't do this?

I know he could make more money investing the money on his own. I do that myself. But he doesn't feel at all comfortable with that. And honestly, I don't want the responsibility of investing for him. It's one thing for me to lose my own money if the market tanks. It's another for me to lose his.

To me, if he has the money in a money market account anyway, there is no real reason not to do the annuity.

Things I am going to ask him to ask the sales guy:

1 - What are the yearly expenses?
2 - What are the withdraw expenses?
3 - Are there any management fees?
4 - How much money can he withdraw and how quickly can he withdraw it if he needs it for some reason?

Are there any other questions I should have him ask?

I appreciate any information anyone can provide.

[sweeps]

The "experts" recommend not putting all your money into a fixed annuity. Your father-in-law could put in 50% of his nest egg in the annuity, and then leave the rest in his IRA in case an emergency arises.

It goes without saying... Stay away from variable annuities and similar investments.

Side note: 100% money market even for someone in his mid-60s is pretty conservative. He needs at least a small amount of stock and bond exposure, IMHO. If he puts half his money in an annuity, he can afford to take a slightly greater risk.

[jIM_Ohio]

This is a great example of where an annuity makes sense. Your GF is not willing to take on much risk (principal risk) and needs a decent return. The fee wrapper on the FA allows him to preserve principal and take on more risk (for a fee).

I would look at the fee structure, look at survivorship (make sure his wife inherits FA if he dies) and see what happens if both die (is their a death benefit). All these things come with a fee. Also check to see if FA is inflation adjusted when annuitized.

[Scanner]

Does this have to be an "all or nothing" type of decision?

Can't he buy a $100,000 annuity and take the other $100,000 and put it into 80% bonds and maybe some utility stocks that pay dividends?

I still think diversification is key, even in retirement and when you are drawing down.

I dislike annuities.

I always joke. . .yeah. ..sure. ..give me your money and I'll send you a check every month.

I think it's a racket.

[Vapors]

Thanks for the advice all. I am not aware of everything he has but I do think he has some other funds saved.

I will talk to him about the fee structure and death benefit. When he called me to ask about it my immediate reaction was no, stay away from it. But the more I thought about him and his situation the more I warmed to the idea. I am glad others seem to agree that for him it might be good for at least some of his money.

Thanks again all for the advice.

[jIM_Ohio]

variable annuities are the products to avoid more often than immediate annuities.

Consider SS to be a basic fixed annuity. But SS will lose purchasing power to inflation over a 30 year payout. This is one leg most people will have in retirement.

Consider an immediate fixed annuity as the second leg. This can be indexed to inflation and can "guarantee" you will get a specific amount of money every month. If you go into long term care, this "asset" is not touched by other avenues- it would also be protected from law suits, creditors etc...

Then the more common legs kick in- 401k, which has RMDs and is taxed.

A Roth IRA- which is not taxed and has no RMDs

Taxable investments- taxed at currently low rates

House- could cash in (by downsizing) or reverse mortgage. This is an asset which could be siezed by creditors.

The goal for most people is to build retirement on as many legs as possible. Even the annuity creates a leg not all other people will have.