Upcoming advisor meeting -advisor sold in-laws an annuity, LTC insurance

[tink]

I'm hoping for some advice - my in-laws- who are both in their mid-70's have always been very private about their finances. They own a home with about 80% equity in it but still carry a small mortgage. They have always worked and probably never made more than 125K combined and I don't get the impression they were super frugal but also not excessive spenders. About 15 years ago they connected with a "financial advisor" and they began saving at much higher rates and have saved a considerable amount more than they would have otherwise. I met the advisor once & I know he does not have a fiduciary responsibly, I suggested caution but the in-laws proceed with him. They feel they owe "everything they have now" to the advisor.

My FIL has continued to work part-time but no longer can as my MIL is in early stage of dementia. We were having a brief conversation this weekend and the FIL started discussing this "guaranteed investment" they purchased three years ago, which turns out to be an annuity. The only details I have so far is that the value is 100K and they purchased it three years ago but have NOT began to take monthly distributions from it. My FIL stated the annuity will pay them monthly until death but has no value beyond that. I also asked if they were still taking their RMD right now since (it was my understanding) they are not required to this year due to the CARES act. The advisor told them they still need to take the RMD. We also learned my MIL has a LTC policy (no details yet). We have a meeting scheduled for next week with this advisor, my in-laws, and the children (my DH and siblings). It will be the first time my DH & others have an opportunity to really ask questions & get a grasp of the financial situation.

Given the information above, what questions do you suggest we ask?

Prior to the meeting, can anyone explain why one may have an annuity at 74 years old but not yet be taking the monthly distributions?

Thank you!

[Jluke]

Bogleheads always seem to say a Single Premium Immediate Annuity (SPIA) is a good one if you go that route.

doesn’t sound like this one is immediate.

what is the purpose of the full gathering?

I would probably limit my questions but I would like to know the AUM fee, Expense Ratio of investments and transaction fees. But I wouldn’t ask. Maybe someone else will

[tink]

what is the purpose of the full gathering?

When we started to ask questions- such as why they haven't taken an annuity disbursement yet or why they are still taking RMD this year, they didn't know. Our questions prompted them to realize there was a lot they didn't know. They now want to ask those questions with individuals present who understand some of what to ask.

[Jluke]

Maybe I’m skeptical but it’s probably because it generates income for the advisor/salesman

[disneysteve]

There are deferred annuities where you buy it today but payments begin at some designated later date so it sounds like one of those. You need to find out when the annuity payouts begin and get an estimate of the amount of those payments.

As for the LTC policy, find out what is covered and the terms of that. Is in-home care covered? That could be very helpful if he needs to get an aide or other help at home but she doesn't need to be in a nursing home yet.

Overall, get everything you possibly can in writing. You don't just want the salesman telling you his version of what's what. Get a copy of the annuity documents. Get a copy of the LTC policy. Find out what investments they have. I'm 99.9% sure the salesman will have them in high cost investment vehicles that generate a boatload of fees and commissions for him.

Sorry they got suckered into all of that. That's one of the dangers of people being secretive about their finances.

[tink]

Maybe I’m skeptical but it’s probably because it generates income for the advisor/salesman

I thought that too...but is that how they make money on annuities? I thought they received a commission on the initial sale...are they also paid based on the amount disbursed (or not disbursed)?

[tink]

There are deferred annuities where you buy it today but payments begin at some designated later date so it sounds like one of those. You need to find out when the annuity payouts begin and get an estimate of the amount of those payments.

I had considered it was a deferred annuity....but that's even worse! A deferred annuity purchased when you are 71...that's awful.

disneysteve - good idea about requesting the actual documents - I will do that.

[tink]

Find out what investments they have. I'm 99.9% sure the salesman will have them in high cost investment vehicles that generate a boatload of fees and commissions for him.

Any specific questions I should ask about investments?

[disneysteve]

Any specific questions I should ask about investments?

Find out what they are. What funds? What stocks? What bonds? What's their asset allocation? Actually, your inlaws should have some type of statements. Perhaps they would show them to you in advance of the visit. That would give you time to look into the details of what they are investing in. I can pretty much guarantee you won't like what you find.

[disneysteve]

I had considered it was a deferred annuity....but that's even worse! A deferred annuity purchased when you are 71...that's awful.

I don't know a lot about them but a healthy 71 year old might actually do okay with something like a deferred annuity that starts paying out in 5 years. They can probably get a higher monthly benefit than they would have with an immediate annuity. So if you're 71, healthy, and have enough money to cover your needs at that point but want to ensure you have enough down the line, it could make sense but you really need to crunch the numbers.

The one possible bright spot here is that if they bought the annuity a few years ago, interest rates were higher so the guaranteed monthly income should be a lot better than what they'd get buying an annuity today. The big question is when do payments start?

[Jluke]

I thought that too...but is that how they make money on annuities? I thought they received a commission on the initial sale...are they also paid based on the amount disbursed (or not disbursed)?

That was in response to taking RMDs when not required.

selling from the portfolio to generate fees.

[corn18]

No one is going to do well with any kind of annuity with interest rates at 0% (except the salesman). So whatever they bought, it is less than optimum at best, and complete garbage that will suck money from them at worst.

And annuities can carry large fees. Ridiculous fees. For their entire life. SPIAs do not, you just buy them and they generate a guaranteed income.

[disneysteve]

No one is going to do well with any kind of annuity with interest rates at 0% (except the salesman).

Hopefully since it was bought a few years ago, it has a higher guaranteed base than if you bought one today. That would be the only possible silver lining here.