Thank you for your clarifying answers. Even though they're incomplete, they're quite helpful.In response:
--My Dad is 77 and in below average health for his age, his wife is 73 and is in worse health than him (loss of mobility, early-onset dementia - her mom died at 72 with Alzheimer's).
--I will ask him about additional riders and fees. I will also ask whether the current $23,400 is simply being withdrawn or is an "annuitization." What I pasted is all of the info I have.
--I *believe* he could get by without the income and could add money if needed.
Your post really helped me understand the options and what factors to take into account. Thank you!! This has driven home that I really need to gain a broader understanding of their finances and become more involved.
Here are some additional observations on your situation:
--- Variable annuities produce annual statements that shows the ins-and-outs of money during a policy year. You said in your original post that the policy anniversary is 3/16, so the most recent annual statement was likely for the period 3/16/22 to 3/16/23. If you can get access to that statement, it will likely show a detailed breakout of the fees/rider charges that are pulling $5,140 per year out of the annuity. If dad doesn't have a copy, then the agent might be able to get one.
--- I'm going to focus on the financial aspects of annuitizing for your dad's life only, rather than an annuitization based on mom's and dad's life. the percentages I'll present below will be a little different than they would be if he elected annuitization to continue for lives of both dad and mom, but the thought process is easier with just considering dad.
--- I would have two groups of questions for the agent or other company representative, based on what you said in your first post. The first group of questions is "If dad elects to annuitize this year, would he need to make that election between 3/16/24 and 4/15/24? And if he elects a single life annuity (that is, on himself only), would he be guaranteed to receive $2,223 per month for as long as he lives, with a minimum payment period of nine years?" (Based on what you've posted, I expect that the answer is "yes")
--- The second question is "If dad does not annuitize, but rather just keeps the annuity in force, is his beneficiary guaranteed to receive a death benefit of roughly $411,000 after his death, presuming that the annuity still has a positive account value and is in force when he dies" (Based on what you've posted, I expect that the answer is "yes")
If the answer to both questions above is "yes", and if dad can make it without monthly income from the annuity from now until he dies, here's some rough math as to how the rate of return compares between "annuitize" and "keep it for the death benefit". All of the calculations depends on how many years dad lives.
--- If dad lives five years (that is, to age 82), then the annuity option would pay $2,223 per month for the next nine years, while the death benefit option would pay $411,000 in five years from now. The interest rate that makes those two payment streams equivalent is roughly 53%. That is, if dad chose to get $2,223 per month for the next nine years, he would need to be able to invest it at 53% per year to make it equal to a $411,000 death benefit payment in five years from now.
--- If dad lives 10 years (that is, to age 87), the interest rate that equates $2,223 per month for 10 years to a $411,000 death benefit payment in 10 years from now is about 9%.
--- If dad lives 12 years (that is, to age 89), the interest rate that equates $2,223 per month for 12 year to a $411,000 death benefit in 12 years from now is about 4%.
--- If dad lives 15 years (that is, to age 92), the interest rate is about 0.4%. Plus, this example (and the others above) ignore the negative effect on the interest rate of the need to pump more money into the annuity if the account value runs close to zero.
Taking all emotion out of the decision, that's what the numbers say. If dad dies within about the next 12 years, the "money-smart" decision would probably be to keep the annuity for the death benefit and not annuitize, and to immediately lapse all annuity riders except the one that is guaranteeing his death benefit. But if dad lives beyond about 12 years, the "money-smart" decision would be to annuitize for $2,223 per month.
You're doing a great service to your parents in diving in to help them with their annuity. Kudos to you!
Please do post back with questions, and with additional information as it becomes available to you.
Statistics: Posted by Stinky — Sat Mar 09, 2024 5:25 am — Replies 5 — Views 520