That risk can be minimized or, depending on how you look at it, even eliminated. If your parents invest a sizeable portion of their IRAs in TIPS, those don't have market risk as long as they are held to maturity, and they are inflation protected. You could set up a long TIPS ladder (say, taking mom to age 100) with one TIPS maturing each year. The amount of each rung would be calculated to make up the reduction in income your mom would experience if your dad dies. Assuming both his pension drops to $3500 and your mom gets only her (higher) SS benefit, not his, that amounts to $69k per year in today's dollars (which will increase each year with inflation). For a 26 year TIPS ladder, that's $1.8m, considerably less than your parents have in investable assets (disregarding the nominal interest that TIPS pay in addition to the inflation correction - so the lump sum needed for the ladder is actually less than $1.8m). However, keep in mind that (a) your dad will likely have a few (hopefully many) years ahead of him, and (b) your mom's expenses won't be as high as your parents' combined expenses (e.g., only one Medicare and Medigap premium, food for one person, possibly a lower rent at the retirement facility, and travel expenses would be for one person, not two, etc etc). So you could probably set up a TIPS ladder with, say, $900k, starting 5 or so years from now, going for 21 years, and still cover a big chunk of what your mom needs. That way, the rest is kept invested for the long term, which would cover large medical expenses down the road and presumably an inheritance.In my mind, even with a reduced pension, she would be able to make up any difference by withdrawing a very safe amount (maybe 2.5%) from their IRAs, but I realize this involves some market risk.
If all that is too complicated and your parents insist on an annuity, get a SPIA, but I absolutely agree with the poster above who said to do it only AFTER dad dies (assuming dad is not concerned about losing mom's pension and SS to cover his expenses, should she predecease him).
Statistics: Posted by snic — Tue Sep 09, 2025 11:21 am — Replies 11 — Views 1270