Skip to main content
No. of Recommendations: 0
Any suggestions

Tell your mother to spend the $20k on a once-in-a-lifetime adventure. She deserves it.

If your parents want to make sure that their $70k stock portfolio will last their lifetime (the next 20 years or so), they can't withdraw more than 5% a year, adjusted for inflation, from it. That means they will start getting $3.5k/year, or about $290/month. The bad news is that it is less than $350/month the annuity salesman promised. The good news is that the money will increase, in the long-run and your mother will have more than $70k to "leave to her boys". Search back for messages with "total return" for more info.

Regarding your mother freaking out when the value dropped. To convince my mother to invest in stocks, instead of CDs, I drew a slowly rising straight line, representing the return from a CD. I then drew a faster rising sinusoidal curve, representing the stock market, overlaying the CD line. The troughs would occasionally dip below the CD line. Eventually, I drew the entire curve above the CD line. I then asked my mother which final point she prefered. Inevitably, she picked the stock market curve, since it ended higher. This line, I told her, was the stock market behavior, with its ups and downs. Eventually, you come out ahead. It also helped that she trusted me to know what I was talking about, since I had been investing for a few years.

The problem with the annuity, of course, if it's invested in mutual funds, the return is not guaranteed except at a rate of about 2 or 3%. Also, your parents would have to base it on both their lifetimes to make sure your mother continues to get a payment after your father dies (the probable case), which decreases the monthly payment. When both die, the payments stop. There is no inflation protection, and you have to rely on the insurance company staying solvent.

Zev
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.