Question
Clara Harris is 75 and recently lost her husband, John after his long struggle with Alzheimers disease. She and her husband lived well after his
Clara Harris is 75 and recently lost her husband, John after his long struggle with Alzheimers disease. She and her husband lived well after his retirement. Just before his death, they had annual income from Social Security benefits of $18,000, pension income of $38,000 and investment income of $4,000. Upon Johns death, Claras total annual income decreased to $33,000. Though Clara does not have a mortgage, she continues to have fixed expenses such as maintaining her home and auto insurance costs and wants to continue her annual cruises with her friends. She estimates that shell need at least $40,000 for living expenses and prefers not to dip into her savings. Her savings and investments total about $100,000 today after spending nearly $150,000 on caregivers and nursing home care for John during his illness. Claras largest asset is her home that she and her husband built 50 years ago on a 4-acre site along a scenic river. Although the house is modest, the property is now worth $500,000 to developer who would build two or three luxury homes on it. Clara loves her home and wants to stay in it as long as she possibly can, even if she has to rely on some degree of custodial care. John was a firm believer in life insurance and maintained a whole life insurance policy with a death benefit of $200,000. Clara was the beneficiary and the $200,000 was recently deposited in a money market account after Johns death. John and Clara have four children who are all financially well off and have told Clara that they do not need any inheritance. However, Clara would like to maintain a significant portion of her net worth so that she can leave something to each of her 11 grandchildren.
Which of the three types of annuities below would you recommend to Clara to help her reach her income goal and her desire to leave an inheritance to her grandchildren? 1) Pure Annuity, 2) Cash Refund Annuity, and 3) Life Annuity Certain. Justify why you would recommend this type of annuity for Clara.
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