 Rethinking
mom's investments
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 Dear
Dr. Don,
My mother has been having problems with a financial adviser whom
she has known since his childhood. (She is friendly with his mother.)
I believe he doesn't have her best interests at heart. How can we
find a competent person who isn't just interested in receiving commissions?
This current person is batting less than 20 percent, winners vs.
losers. I know there are no guarantees, but the current situation
is dreadful. She started with over $250,000 12 years ago and only
draws $650 dollars a month. Now she only has $75,000 left and he
is recommending a reverse mortgage for her. Help! She is 72 years
old and owns her home, currently worth about $250,000. What can
we do?
Thank you,
-- Richard Retrodict
 Dear
Richard,
While the stock market has had some rocky times over the past 12
years, it's averaged a 10.5 percent annual return in the past 12
years, 1994 to 2005, as measured by the S&P 500 index. I'm sure
it's hard to see an investment account that started with a quarter
of a million dollars shrink to just 30 percent of that value, given
your mother's conservative draws of $650 per month.
I'm going to assume that nothing is actionable in
how the account was managed. (You may not want to make that assumption.)
What's paramount is to help your mother make her best decisions
with the remaining assets she has under her control. The reverse
mortgage, while an expensive proposition because of its high closing
costs, isn't necessarily the wrong decision, but I think she should
consider a different course of action first.
I think she should first consider buying an immediate
annuity with the money currently in her investment account. Two
easy-to-use sites for quotes are immediateannuities.com
and Vanguard.com.
While I don't have your mother's particulars, I estimate
that $75,000 would buy her a life annuity of $608 per month or an
inflation-adjusted life annuity of $410 per month -- with both quotes
coming from Vanguard's Web site. If inflation averages 3 percent
annually, it'll take more than 13 years before the inflation-adjusted
life annuity catches up with the monthly payment of the noninflation-adjusted.
Depending on her health and the big picture on her
financial situation besides just the investment account and the
house, the annuity or the reverse mortgage might not be the right
choices. I'm thinking specifically about the changes in qualifying
for nursing-home care under Medicaid, with the Medicaid Transfer
of Asset rules effective with the passage of the Deficit Reduction
Act of 2005.
It's worth consulting with a financial planning professional
and an attorney skilled in this area before making an annuity purchase
or entering into a reverse mortgage loan. A financial professional
that is a Chartered Advisor for Senior Living, or CASL, is trained
in this area, as is a certified elder law attorney.
Editor's note: Dr. Don is an associate professor
at The American College, and the college is the sole provider of
the CASL designation. Dr. Don has investments in Vanguard, but not
annuities.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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