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My mom (76 years old) is getting ready to sell her house, and I need some advice on how best to invest the profit she makes on it so that she gets a monthly income to suppliment her Social Security.

I expect the profit to be at least $110,000, and we estimate she'll need about $600/mo income. We're looking for something I can just setup and not worry about as it sent her monthly checks for the next 7-10 years.

I had originally thought about putting the bulk of the money in a Vanguard bond fund (or a bond fund/money market mix) and setting it up to automatically transfer money to her checking account each month (reinvesting dividends, of course).

Then I poked around on the Vanguard web site, and started reading about variable annuities. It seems an annuity may be be better for her situation, as it would be very low-maintenance, and would also guarantee her an income as long as she lives.

Any thoughts or advice?

Thanks!
---joe
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My mom (76 years old) is getting ready to sell her house, and I need some advice on
how best to invest the profit she makes on it so that she gets a monthly income to
suppliment her Social Security.

I expect the profit to be at least $110,000, and we estimate she'll need about $600/mo
income. We're looking for something I can just setup and not worry about as it sent her
monthly checks for the next 7-10 years.

I had originally thought about putting the bulk of the money in a Vanguard bond fund
(or a bond fund/money market mix) and setting it up to automatically transfer money to
her checking account each month (reinvesting dividends, of course).

Then I poked around on the Vanguard web site, and started reading about variable
annuities. It seems an annuity may be be better for her situation, as it would be very
low-maintenance, and would also guarantee her an income as long as she lives.

Any thoughts or advic


There is alot written about annuities on these boards and most is negative.

However, Vanguard should be low cost so that is a good start.

If you want lifetime payments an annuity could be for you. However, remember inflation.

Some exposure to the market maybe good (if she and you can take the risk). Maybe a variable annuity with 25% in an index fund and the rest in bonds?

I would search the boards and remember you maybe the one in a hundred that an annuity fits so don't get turned off before you do the research. Some of the posts are very good at giving the pros and cons. Sorry, don't remember what boards.
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rjm1 wrote,

There is alot written about annuities on these boards and most is negative.

However, Vanguard should be low cost so that is a good start.

If you want lifetime payments an annuity could be for you. However, remember inflation.

Some exposure to the market maybe good (if she and you can take the risk). Maybe a variable annuity with 25% in an index fund and the rest in bonds?

I would search the boards and remember you may be the one in a hundred that an annuity fits so don't get turned off before you do the research. Some of the posts are very good at giving the pros and cons. Sorry, don't remember what boards.


I agree with rjm1.

Annuities aren't the best choice for most people, but if you happen to be one of the few where an annuity does makes sense, Vanguard or Tiaa-Cref have the lowest fees and commissions.

intercst
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>I agree with rjm1.

>Annuities aren't the best choice for most people, but >if you happen to be one of the few where an annuity >does makes sense, Vanguard or Tiaa-Cref have the >lowest fees and commissions.

Thanks for the tip. I'm rather fond of Vanguard, and would prefer to deal with them. I sent for their prospectus, and I'm going to do a bunch of reading in the next couple of months. I have until at least January, since my mom isn't going to put the house on the market until after the first of the year.
---joe
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There is an annuities board in the Speakers Corner folder where these matters are discussed. A search on the term annuity will find many prior threads.

A big problem with the variable annuity is that in most cases the annuity contract provides payments for the life of your mother or for a fixed minimum number of payments, but on her death no assets remain. If the same money is in a mutual fund or bonds, her income will be lower, but her heirs will inherit most of the principle.

Rather than bond fund, you should take a look at laddered maturity corporate bonds. They are discussed on the Bonds and Fixed Incomes board in the Investors Roundtable folder.

The usual Foolish strategy would be a combination of laddered maturity bonds and index mutual funds.

Best of luck to you.
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jsalemi wrote:

Thanks for the tip. I'm rather fond of Vanguard, and would prefer to deal with them. I sent for their prospectus, and I'm going to do a bunch of reading in the next couple of months. I have until at least January, since my mom isn't going to put the house on the market until after the first of the year.

My husband and I just went through trying to decide whether to keep/get rid of an annuity that he had purchased long ago, before he paid any attention to investing. A couple things you should be aware of about annuities:

1) They are primarily retirement investing vehicles. Once you put the money into the annuity, you can't take it out until a certain age (I think 59-1/2). Since your mom is over 76 that probably isn't an issue.

2) Annuities usually have surrender charges which are spread over 7 years. For example, if you cancel the annuity in the first year, you pay a 7% charge; in the second year, a 6% charge, and so on until the surrender charge expires.

3) Annuities are an insurance product as opposed to a straight investment vehicle. The costs are higher than a no-load mutual fund because you are buying some insurance. This tends to cut down on the return on the investment.

Given what I've learned, I'm not a big fan of annuities, since you can get the same or better return outside of the annuity, with much less hassle and paperwork. The only real benefit I can see to the annuity is that accumulations are not taxed until they come out of the annuity. At your mom's age, does she really need that income tax protection? Particularly, since $250K of the proceeds of the home, if she's lived in it for more than two years, will qualify for the CG exclusion.

You should take into account that interest rates are likely to be on the rise in the future, in your considerations re: bond funds.

My father is nearly 68. He's almost totally invested in stocks, with some tax free muni bonds in his portfolio. My dad was Foolish, before the Gardners "invented" such!

Fool on! And good luck!

CCSand
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Thanks for your comments! I've since found out that the age limit on buying an annuity (at least at Vanguard) is 75, so that option is now out anyway.

>>Rather than bond fund, you should take a look at laddered maturity corporate bonds. They are discussed on the Bonds and Fixed Incomes board in the Investors
Roundtable folder.<<

Thanks -- I'll look into them.

---joe


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