Financial Planning for Disabled Retiree

Background: My significant other had to quit work in her late 40’s after a traumatic head injury in a car accident. The twit she was married to at the time failed to get her a personal injury lawyer, and signed off on an agreement with the insurance company for a tiny settlement which has apparently since evaporated. When I came into her life, she had a couple hundred thousand in savings, Social Security benefits, and her house is paid off. No dependents. She’s about 50 and her family is pretty long lived, so she needs to stretch her savings out quite a bit.

I advised her to find some kind of financial planner (I know nothing about financial planning,) and she hired an Ameriprise guy her sister recommended. Everything this guy sends her she asks me to review. Reading some of the complaints about annuities in the Pit started making me extremely nervous about the investments her guy is getting her into.

Whenever I want to learn about a new topic I look it up on the good old internet machine, but all the info I can find about Annuities and planning is all spam put out by annuities sales people. I can see that the Riversource Annuity Mr. Ameriprise got my SO hooked into is actually a subsidiary of Ameriprise (so much for Mr. Ameriprise’s objectivity,) the other fund he got her into is a real estate investment account.

I realize I’d be better off asking this question when I’m at home with the actual material in front of me, but I thought I’d put this out there anyway - I could really use some objective advice about what pitfalls to watch out for and what the wisest direction for her investments should be. My goal is to make her as stable on her own as possible. What kinds of fine print do I need to be reading for this annuity? Is an annuity a good idea, really? How do different annuities stack up?

I interviewed with Ameriprise.
I suspect that they are focused on selling you the highest-commision products they can find.
Regarding the specific questions, I’ll defer to someone else here for detailed answers.
It doesn’t look like they’re making radically poor choices, though. Putting money in an REIT and annuities is a fairly conservative path, so he’s not making terrible choices, though he might not be making the best ones either.
I don’t know if I’d be putting my money into an REIT nowadays with the subprime crisis, but if all the loan assets are quality assets or backed by government guarantees it’s probably not a horrible idea.

When inspecting these financial instruments, I’d suggest paying close attention to administrative overheads and commissions; perhaps you should compare these investments’ costs to those of their competitors.

Thanks for the response. Do you have any idea where I can find a breakdown comparing different annuities? All I can find online is spam. I can’t tell what to expect from a standard annuity, or how this one deviates from standard. There definitely seem to be a lot of administrative costs hidden inside - half a percent here, a quarter of a percent there. On edit: What I really don’t get is how much of that kind of thing is acceptable.

She is fortunate to have someone concerned enough to look at the situation with her. I am worried about the path she is on for a number of reasons. Ameriprise is not primarily in the business of financial planning, they are a distributor of financial products. Unfortunately going to them for advice is like going to a car salesman for advice on the type of car that is right for you. The answer is invariably going to be the one that results in the best commission for the salesman while meeting your minimal requirements.

Annuities like Riversource are quite expensive, with fees and charges that can eat up well in excess of 2% of the investment gains each year. On top of that they have surrender charges, meaning you have to pay a hefty sum if you choose to move the money before 7-10 years are up. The Straight Dope is a good place to ask these questions, but the best place on the web for help is:

Bogleheads

The site is populated by some extraordinarily savvy folks, including some of the best known investment authors in the world who are generous with advice that relatively unsophisticated folks can both understand and implement. I would love to see your SO step back for a second on not make any investment with Ameriprise until she is absolutely certain that is what she wants to do. For example, another solution might be a low fee mutual fund provider which will schedule an office visit for her to develop a plan. They will do this while charging thousands of dollars less each year for the management of the money.

You are finding it difficult to find information on these annuities because they are incredibly complex. For instance, Ameriprise might have five or six versions of their Riversource annuity with different fee structures and benefits. From there they might have several living benefit riders at extra cost that may or may not be included. Your best bet is to call them directly and ask for the prospectus. This document will typically be over a hundred pages, but will detail all the costs and provisions of the contract. You are still left with the problem of knowing whether the cost and provisions are competitive and I am in the financial industry and have a very difficult time doing that, even with expensive proprietary tools at my disposal.

I wish you both the best of luck, it can sometimes be difficult for people to find good unbiased financial planning and advice without knowing where to go.

There are fee-based rather than commission-based financial planners. It sounds like she has enough assets and a complex enough situation to make hiring one of them worthwhile. If you work for a large company, your benefits office might be able to make recommendations. Otherwise, try word-of-mouth with your financially-savvy friends and/or financial professionals you do business with. Is there an accountant who does your taxes, bankers, anyone else you know in that kind of business who could recommend someone local to you?

From a do-it-yourself perspective, public libraries tend to get a lot of books to help people with financial planning, at levels from the very basic to more complex. This is an inexpensive way to learn some of the basics and get pointed to more resources.

Thank you Harriet. I’ve started reading up on personal finance a bit, hopefully that will help.

This thread makes me extremely sad - if I post a question to the SDMB asking about black holes, quantum theory, anthropology, chemistry, literature, politics, hitory… I am *deluged * with detailed, well thought out and researched responses. But ask about personal finance and some details about retirement options and listen to the crickets chirp.

I really appreciate the three of you who came in to help (especially the help **fruitbat ** has sent me offline,) so please don’t take this the wrong way. But if this lack of response demonstrates a lack of understanding on the part of the SDMB, one of the most knowledgable communities out there, then what is the state of retirement planning for the population at large? Do people really not think about or research this?

I despair for my generation. We will all be fleeced by annuity hawking charlatans when we turn 60.

Good points.
A counterpoint: On specific legal issues, we don’t see people getting answers they want for that, do we?
I’m a well-read consumer. I’ve got what amounts to a professional-grade financial simulator sitting on my desktop PC.
If I dive in waist-deep and try troubleshooting this one, there’s a tremendous risk that I won’t give the right advice on these financial matters and a poor woman could have decades of reduced stand-of-living.
That’s on top of the problem lawyers on here have: I don’t have the whole story. Why does she have assets at all? The story makes it sound like she’s dead broke.
How much does her ex make? Were they married such that she has a share in his social security? Does she have a stake in any pension benefits? How spendy is she? What are her ongoing health expenses going to be? Is she still in rehab? Will she ever work again?
Without those and dozens of other answers, providing specifics is foolhardy.

Annuities can be good–they can provide an income stream for the remainder of a person’s lifetime so you do not risk outliving your money. The cost will vary and will have a life-expectancy aspect and often a helath aspect because the company making the promise will only make money if it guesses right about expected life span.

Additionally, there is no “standard” form of annuity. Whether you can terminate the annuity, get cash out, buy additional coverage, have funds left to your estate if you die early, get a higher income stream by electing that a portion of the payment be tied to market returns will vary from company to company and indeed can be specifically negotiated in many cases. In fact, the terms can be made so complicated that even professionals may not be able to understand them–never invest in what you cannot fully understand.

Thus, there is no way to answer when someone asks whether an annuity is a good idea–gotta know all the terms and the buyer’s circumstances.

Am I wrong, or does most financial planning include pensions, social security, and IRA’s and such, rather than annuities? So that most people who are planning ahead aren’t really looking into annuities?

Yllaria, I would disagree with you, sort of. Most people should at least take a good look at whether an annuity is a good fit for them. However, the time to take that look may be fairly late in life. It is common to accummulate a lump sum in an IRA, 401(k) and other investments, then purchase an annuity around the time of retirement.

If someone has a decent amount of Social Security coming to them and another pension that pays out monthly until death (some pensions do pay out in lump sums upon retirement), they may not be worried about outliving their money. They have a good income stream that they can expect to continue.

But if someone has mainly a lump sum, not much Social Security, and no other pension, they might want to purchase an annuity with some of that lump sum to avoid the risk of outliving their money.

If someone is unlikely to exceed their life expectancy or is trying to maximize the estate they leave, those would probably be reasons to decide against an annuity. But most people can better answer those questions later in life, and an annuity will still be just as available to them later in life as it was before.

A fee-only advisor is a good idea. One place to find one is the website of the National Association of Personal Financial Advisors.

I’m sorry about your situation, but I think you are misguided about why there are so few responses. I’m sure many of us here have done the required planning. In my case, for example…

I am 54 and could retire tomorrow.
I do some part-time work solely because I enjoy it.
I own my house, have no debt, about $10,000 in savings and receive income from:

  • a investment fund of about $200,000 (I got free advice for this through my bank)
  • $60,000 in UK Premium Bonds (this is my idea of a gamble :smiley: )
  • two pensions (both taken early; in total about $12,000 annually)

I have a investment maturing in 3 years (approx $60,000) and a UK State pension coming in 6 years.

The reasons I didn’t post here previously (all unlike your SO):

  • I’m in the UK
  • I’ve worked for 34 years
  • I have always been in index-linked pensions schemes

I’d forget about annuities, advisors, consultants etc and just put all the money in a low expense Life-Cycle target Retirement fund. It’ll cost her the least and give one of the highest probabilities of good returns.

https://personal.vanguard.com/VGApp/hnw/funds/vanguard/bytype

Harriet and Slant said what I would have said (me saying it in a grammatically shaky and misspelled way) Some other Fine print look at the surrender period and surrender charges and the language surrounding what the penalties are for this. What does she want the death benefit to look like? Does the language match it?

Bottom-line I don’t think you can beat Harriet’s advice that this is a job for a local, good Financial person during a sit down

To echo Slant’s 2nd post I didn’t answer because I don’t think these can be answered in any kind of GQ way - or to be more precise there definitely is a GQ answer but it will depend on her situation, where exactly she is and where she wants to be, what her personal tolerance for risk is, what her estate needs to look like, ect… Further I think there is the issue of in GQ saying (bogus example)The Wanderers Life Annuity is so much better than Prudance’s product in GQ (/bogus example)