ISO recs for a financial advisor who can help an elderly parent decide whether to convert TSP balance to an annuity

[Anonymous]

My 80-year-old parent is weighing whether to convert part of their TSP balance to a lifetime annuity. The annuity option has become more favorable as interest rates have risen.

As I do the math, I think there is a lot of upside to doing this, including a boost in guaranteed income and a solid hedge against the parent outliving their money. Some downsides, too -- like inflation eroding the value of the monthly payments over time.

I know there are some things I haven't thought through, like how, if it all, this would affect parent's eventual (potential) eligiblity for Medicaid should their health decline and their savings run out.

I'd like to suggest that they run the numbers with a reputable financial advisor, as a one-time thing, not for ongoing money management. Can anyone recommend an appropriate fee-only advisor, ideally in Maryland, who might take on a small matter like this?

[Anonymous]

Just be careful. Annuities are a big money make for financial advisors. The fee they get is oversized. I'm not sure you will find someone impartial.

How much is in the TSP and what sort of monthly income do they require?

[Anonymous]

Anonymous wrote:My 80-year-old parent is weighing whether to convert part of their TSP balance to a lifetime annuity. The annuity option has become more favorable as interest rates have risen.

As I do the math, I think there is a lot of upside to doing this, including a boost in guaranteed income and a solid hedge against the parent outliving their money. Some downsides, too -- like inflation eroding the value of the monthly payments over time.

I know there are some things I haven't thought through, like how, if it all, this would affect parent's eventual (potential) eligiblity for Medicaid should their health decline and their savings run out.

I'd like to suggest that they run the numbers with a reputable financial advisor, as a one-time thing, not for ongoing money management. Can anyone recommend an appropriate fee-only advisor, ideally in Maryland, who might take on a small matter like this?

I haven’t used these guys but have considered it (one of the main people posts on bogleheads and seems pretty thoughtful). Price seems reasonable.

https://denouementfinancial.com/two-simple-pricing-options-no-surprises/

TSP annuities are priced fairly. If SS and pension isn’t providing enough guaranteed income for basic living expenses then a partial annuity probably makes a lot of sense. An 80 yo will get a good monthly payment (and converting assets to a stream of income probably isn’t a bad idea w/r/t Medicaid).

[Anonymous]

Bogleheads, which tends to not like many insurance products, is okay with a single premium immediate annuities, and posters often recommend them in situations like OP's parent.

OP, if you posted the particulars of your parent's financials and the wisdom of doing an SPIA, I am sure you would get a lot of helpful answers, perhaps helpful enough for you to avoid an advisor.

[Anonymous]

Thanks for the replies, PPs.

As a PP noted, the annuity would come through the TSP system, not through an outside advisor. It's one of the distribution options. See here: https://www.tsp.gov/publications/tspfs24.pdf

This came up because my parent's latest TSP statement showed this potential option and an estimate of what the monthly payout would be.

We would consult the financial advisor to help do the math on whether my parent would be better off financially. And to help think through the many things that we haven't thought through about this decision.

Parent has a small pension plus Social Security that, combined, amounts to about $26,000 a year. Parent also has about $200,000 in retirement accounts and other savings, and draws upon that each year to help make ends meet.

Within that $200,000 is a balance of $118,000 in the TSP account. Parent would convert all or part of that into an annuity through the TSP system.

I will check out the advisor that a PP linked to.

I have posted on Bogleheads about this situation, asking if it would make sense to convert to an annuity, and am monitoring repllies there. I thought DCUM might be a better place to get recs for a local fee-only financial counselor/advisor.

[Anonymous]

Anonymous wrote:Thanks for the replies, PPs.

As a PP noted, the annuity would come through the TSP system, not through an outside advisor. It's one of the distribution options. See here: https://www.tsp.gov/publications/tspfs24.pdf

This came up because my parent's latest TSP statement showed this potential option and an estimate of what the monthly payout would be.

We would consult the financial advisor to help do the math on whether my parent would be better off financially. And to help think through the many things that we haven't thought through about this decision.

Parent has a small pension plus Social Security that, combined, amounts to about $26,000 a year. Parent also has about $200,000 in retirement accounts and other savings, and draws upon that each year to help make ends meet.

Within that $200,000 is a balance of $118,000 in the TSP account. Parent would convert all or part of that into an annuity through the TSP system.

I will check out the advisor that a PP linked to.

I have posted on Bogleheads about this situation, asking if it would make sense to convert to an annuity, and am monitoring repllies there. I thought DCUM might be a better place to get recs for a local fee-only financial counselor/advisor.

In that case, 17:52's post was particularly helpful!

(PP who suggested Bogleheads)

[Anonymous]

Annuities are for when you are reasonably worried about outliving your money. If that’s her primary concern, then the TSP annuity is probably a good choice. You can get a couple quotes for an outside SPIA to compare. Bogleheads is definitely the place to go for more specific recommendations

[Anonymous]

Generally, I don't think annuities make sense for people who are close to the end of their lives (I am sorry to be insensitive, just going on probability).

Having said that, you can find people on Garrett Planning Network who charge by the hour. This is a service that can easily be done from afar/online. I used Keener Financial (based in Texas).

[Anonymous]

Arthur Stein is very knowledgeable about federal retirement options.

[Anonymous]

i think you need to consult with a medicaid/eldercare advisor *in your jurisdiction*, as a pure financial advisor will not have intimate knowledge of the medicaid process and rejections/exclusions, and the income limits vary by state/district.

For example, in DC, long term care can be covered under medicaid for medically needy elderly who have spent down their assets as long as their monthly income is under $2829, requalifying yearly. Folks that have income over that may end up having more difficulties, and have to spend down/requalify every 6 months.

https://dhcf.dc.gov/service/long-term-care-ltc

maryland medicaid has different asset limits but will cover as long as the income does not exceed the cost of the facility. Waivers for in-home care I believe have a waiting list for years even after one meets the asset limits.

So you need an eldercare lawyer, not a financial advisor.

[Anonymous]

You do not need a financial advisor. You have the information already.

Annuities especially from a tsp are designed to be actuarially neutral, meaning that the annuity provider less their fee expects them in average to pay out exactly what the account balance would have otherwise produced.

Accordingly you are making a bet. Do you think your mother will outlive the average life expectancy of other 80 year olds. If yes and you are right it is financially advantageous to do the annuity.

But in the end of the day you just don’t know. You just have to decide.

Remember though it doesn’t have to be all or nothing. You can hedge your bets an annuities half.

[Anonymous]

If they have a TSP, then they get a very nice annuity (CSRS) or a nice annuity and social security (FERS). I wouldn't convert my TSP to an annuity when you already have a nice income stream in retirement. As someone else said, its a gamble, so I'd rather keep a little diversification and keep the TSP.

[Anonymous]

Anonymous wrote:You do not need a financial advisor. You have the information already.

Annuities especially from a tsp are designed to be actuarially neutral, meaning that the annuity provider less their fee expects them in average to pay out exactly what the account balance would have otherwise produced.

Accordingly you are making a bet. Do you think your mother will outlive the average life expectancy of other 80 year olds. If yes and you are right it is financially advantageous to do the annuity.

But in the end of the day you just don’t know. You just have to decide.

Remember though it doesn’t have to be all or nothing. You can hedge your bets an annuities half.

I'm not sure this is the best/only way to think about this. I think the decision is more on what is more important to you and how much you want to mitigate risk--that is do you want to ensure your mother has a certain level of income no matter how long she lives (annuity) or do you want her to have more capital for a variety of things including leaving an inheritance. For me, it would be hands down ensuring my mom has enough to guarantee a certain standard of living. So I would calculate out what income level would be the minimum she would want to have. Then I would purchase an annuity that guarantees that amount and leave the rest as capital. If you have an annuity for all she needs, she can then have more in stocks to have greater potential growth for the remaining capital too.

[Anonymous]

Coincidentally I just today sat through a retirement seminar my fed agency sponsored, where the presenting CFA (who specializes in fed retirements) discussed why the tsp annuity option is almost always a bad decision.

[Anonymous]

Anonymous wrote:If they have a TSP, then they get a very nice annuity (CSRS) or a nice annuity and social security (FERS). I wouldn't convert my TSP to an annuity when you already have a nice income stream in retirement. As someone else said, its a gamble, so I'd rather keep a little diversification and keep the TSP.

But in OP's case, it doesn't sound like they *do* already have a nice income stream