Q: I have a situation that I need some advice on. About 20 years ago, my dad (who was a widower at the time) decided to retire, sold his house up here and bought a home in Florida. He told me that Social Security will cover just about all of his expenses and, if he needed money, he would take some money out of an annuity that he had. At the time, he had over a half-million dollars in an annuity. As his health changed, he eventually sold his home and moved into an assisted-living facility. I just discovered that, about 15 years ago, he annuitized his annuity. My situation is, I’m in my early 60s, divorced with no dependents and was depending upon the balance of the annuity to fund my retirement. When my dad died recently, I was told that there was nothing left in the annuity and, thus, I will inherit nothing. My first question to you is, do you think he was scammed and that I have a case against the insurance company? My second issue is that I only have about $25,000 set aside for my retirement; obviously, unless I get money from the insurance company, I will not be able to retire. Any suggestions on what I can do so eventually I will be able to retire?
A: I do not believe that you have a cause of action against the insurance company and, even if you did, it’s likely the statute of limitations has already run out. It is not unusual for someone to annuitize their annuity. Basically, when you annuitize an annuity, the insurance company guarantees you a set amount of money, generally monthly, that you will receive for the rest of your life. If your dad annuitized his annuity 15 years ago, it means for the last 15 years he has been receiving regular payments from the annuity company. I assume that when your father got to Florida and eventually settled into a lifestyle, that retirement cost him more than he originally planned. After all, what many people find in retirement — and it’s something I constantly preach — is that you need a rising income for the rest of your life. In today’s world, you cannot live on a fixed or a shrinking income.
When someone annuitize an annuity, they are not being scammed or anything of that nature. If someone was on their death bed and an insurance agent convinced someone that they should annuitize their annuity, that would be one thing. That is not the situation in this case. Your dad received payments for a 15-year period. In addition, it is important to realize that, when your dad made the decision and if he consulted with the insurance agent or a financial adviser, their goal was to do what was best for your father’s situation, not necessarily what is good for his beneficiary.
Annuitizing an annuity is sometimes a good strategy, particularly for a conservative investor who wants a guaranteed amount of money for the rest of their life. I don’t necessarily recommend it for everyone, but I have recommended it in the past and will continue to recommend it to some people, depending upon their goals and objectives.
With you depending upon the annuity, it does put your retirement plans on hold. The first thing you should do is to go through your expenses and look for ways to prune costs so you can start an investment portfolio. Since you are working, you should look at whether the company has a salary deferral program, such as a 401(k) plan. If it does, you need to take advantage of it. You should put the maximum away, if possible. Saving in a 401(k) plan is an easy way to save, because the money comes directly out of your paycheck.
The key for you is to look for ways to cut your current expenses so that you can save more. In addition, you may have to adjust your thinking, as retirement for you may mean not fully retiring, but cutting back and working on a part-time basis. The reality is that starting to save for retirement in your mid-60s is difficult. If you can stay at your present job until you’re at least 70, it will allow you to substantially increase the amount of Social Security you will receive.
Whenever I meet with people and inheritances come up in the discussion, I always tell them they should never plan on an inheritance. It is a dangerous game when you depend upon an inheritance because you never know what someone’s going to be worth at the time of their death, nor do you know if their situation may change and you may not end up being the beneficiary. If you independently save for your retirement, then no matter what happens to the inheritance, you will be in fine shape.
Author: Rick Bloom
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