Submitted by dadproxy t3_11dujup in personalfinance
So, my dad is turning 65 this year and has been planning to retire after 30 years with the same company. He's never been super financially savvy, but his company provided good benefits including a 401k match and a pension, which we figured should put him in a pretty good place to live comfortably after retirement so long as he and my mom kept expenses in check. I volunteered to give him a hand with this aspect, helping to create a budget and figure out post retirement admin stuff like IRAs and Medicare enrollment, etc.
Anyway, a few months ago my dad was awarded a large settlement from a court case that essentially quadrupled his life savings. Given the large influx of cash and the timing with retirement right around the corner, I urged him to speak to a couple of CPAs or fiduciaries to help adjust his plans and figure out how to enjoy the new cash without letting lifestyle creep get the best of them. Last week, he met with an EA who is an acquaintance that he trusts, and he shared the meeting minutes from the consult.
The EA has recommended putting nearly all of his money into a variable rate annuity with annual fees of about 4% percent, but a "guaranteed" return of the greater of 7.65% or market return per year. My parents are also thinking about buying a new house and either selling or renting the old one. The EA's recommendation for this scenario is that they sell their current home (entirely paid off), and roll the profits into their new home with a reverse mortgage.
The reverse mortgage recommendation immediately set off my Spidey senses, and the more I read about variable rate annuities, the more leery I am about that too. Like I said, my dad trusts this guy, but I'm worried that he's really not getting the best advice for his situation and instead is being pushed towards whatever will make this EA the most profit. Am I right, or are there actually situations where either of these products make sense?
Edit: Wow, this received so many more comments than I was expecting. Thanks to all of you for the advice and resources. I fell extremely well prepared to explain to my Dad why this is a total ripoff and plan to help him set up interviews with actual fiduciaries.