Ought to My 80-12 months-Previous Dad and 65-12 months-Previous Mother Flip Their $687,000 Nest Egg Into an Annuity? ‘I Do not Suppose They Understand How A lot They’re Spending’

A Reddit consumer posed a query that hits house for lots of households making an attempt to assist their growing older dad and mom navigate retirement: Does it make sense to purchase an annuity?

The publish laid all of it out. Their dad is 80. Mother is 65. They’ve acquired round $687,000 in investments and roughly $69,000 in annual revenue from Social Safety and a pension. The consumer thought-about letting them comply with the variable proportion withdrawal technique—principally taking round 5.1% from the portfolio annually. That might give them about $85,000 in revenue yearly, which ought to cowl their estimated $75,000 in yearly bills.

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Nonetheless, they weren’t absolutely satisfied. “I do not belief that she actually understands how a lot they spend,” they mentioned about their mother, who believed their retirement spending would naturally drop. So the consumer began wanting into annuities. Mounted, assured revenue for all times? Fewer surprises? It appeared interesting, particularly for fogeys with such a big age hole. And so they have been high-quality with the concept it’d burn up many of the cash. “Sure, they will not depart something to us once they move, however it will be break up six methods anyway,” they wrote.

That sort of honesty sparked loads of responses. Some urged the VPW technique might nonetheless work. Others have been fast to convey up annuity charges, which in mid-2025 have climbed considerably. A number of mentioned that mounted annuities have been now paying over 5%, with joint lifetime annuities providing much more for older consumers. That is the place the maths begins to matter.

The unique publish did not specify precisely how a lot they’d take into account changing, however as an example the dad and mom determined to place $500,000 right into a joint quick annuity. Primarily based on present market charges, that would generate round $2,350 to $2,500 monthly, or roughly $28,000 to $30,000 per 12 months. Add that to their current $69,000 in Social Safety and pension revenue, and their complete annual revenue might land round $97,000 to $99,000.

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However as soon as they decide to an annuity, that cash is locked in. It is not obtainable for emergencies, surprising medical prices, or any huge one-time bills. In the event that they select inflation safety, the month-to-month payouts drop firstly in change for gradual will increase later. And until they add particular riders, there’s sometimes no cash left over for heirs. For retirees targeted on assured revenue and fewer day-to-day decision-making, it could be definitely worth the trade-off. However for others, the lack of flexibility—particularly with a big chunk of financial savings—can really feel like too huge a sacrifice.