Hoping to tap into the wisdom of the crowd here. Any and all constructive input greatly appreciated.
Scenario: My parents are super conservative financially and disciplined in their spending (keep this in mind). Decades ago they each purchased IRA annuities. This wouldn't be my preference, but they didn't know what else to do at the time, and it is what it is. By a curious sequence of events they have done fairly well, more than anything because they didn't touch them. But I digress, the details of the annuities don't matter much at this point because they are getting ready to move from the accumulation phase to the annuitization phase. Each annuity is worth about $150k. Both parents are about 70 years old, reasonably good health. They own a house outright (worth ~700k?), and expect about $3800/month combined Social Security. No other retirement or investments otherwise. They need to make a decision on this very soon, over the next couple weeks.
Someone at the insurance company is advising that they roll the annuities into another IRA before they annuitize. Of course he's recommending a family of mutual funds with loads and high fees, so that's not gonna happen on my watch. If anything, we will roll it into a Vanguard IRA.
If it were me, I would just do the IRA rollover. But I'm more risk tolerant, and I have a lot more put away in both qualified and non-qualified accounts. If the market dips for an extended period I may have to cut back on luxuries, but I'm not going to end up eating cat food. Of course, I wouldn't let it come to this for my parents, but you get the idea. I think they can probably(?) squeak by on their Social Security income, but it would be tight.
The goal here isn't wealth preservation or passing on an inheritance...I just want them to have a decent and stable retirement. The more I think about, the more a lifetime annuitization makes sense. Combined, these would add about $2200/month of income, in perpetuity, until death. This is more than they need right now, but would give them some buffer as inflation erodes purchasing power. And they their relatively modest nest egg would be protected from market volatility. I've run the annuity valuation numbers under different life expectancies and inflation scenarios and I believe the risks are manageable.
Now, here's where things get interesting. They seem pretty committed to downsizing to a LCOL area. If they do then after selling the house and then buying a cheaper one elsewhere they should have around $400k tax free to invest.
So my current thinking is for them to annuitize for a lifetime payout as a way to guarantee a fixed income stream to supplement to their Social Security. This would (mostly, assuming inflation doesn't go wild) ensure that they don't outlive their investments if either or both happen to live longer than expected. Additionally, would invest the $400k via a non-qualified (taxable) account in something like a balanced portfolio (60% stocks, 40% bonds). This investment could be tapped for unexpected expenses (new roof, car repair, medical, etc.) and should provide some amount of inflation protection over the long term. They should be able to easily live on the fixed income portion for 10-15 years, even with moderate inflation, and there are no RMD on the non-qualified account so they could mostly let it compound unless/until they really need to start drawing on it.
Ok, sorry for the wall of text. I know it's a lot to digest. An apologies if I've left anything out or didn't explain something clearly. Happy to answer questions.
Sanity check: Does this plan seem reasonable? Am I missing or forgetting anything important?
Annuitizing a lifetime payment stream and then investing proceeds from the downsize into a taxable account seems unconventional to me for some reason...is this weird or problematic? E.g. is it better to roll the annuities into a Vanguard IRA and then supplement this with the taxable account?
Other suggestions that I should consider?
Thanks in advance!