Portfolio Suggestions – 82 Year Old Retiree

[RocketIIIflyer]

Hello,

I have recently been reviewing this site and have found it very informative. My new recent mother-in-law has asked for assisted in managing her portfolio. Any suggestions or advice you could provide would be greatly appreciated. Her goal is to make as much income as possible with some possibility of growth.

Emergency funds: Included in the taxable cash below - $50,000 desired liquid.
Debt: No debt, house is paid for.
Tax Filing Status: Widow
Tax Rate: TBD – Did Not Know – Only SS and RMD from IRA - $1,400 per month(?)
State of Residence: California
Her Age: 82
Desired Asset allocation: TBD – 25%/75% Stocks/Bonds
Desired International allocation: TBD

Current retirement assets

Taxable
$181,000 – (Cash held in savings or money market account)
$10,000 - individual stock

Mutual Funds: $168,840

55.8 % - $94,256 - Fidelity Cash Reserve (FDRXX)(.34)
16.9% - $28,549 - Fidelity GNMA Fund (FGMNX)(.45)
12.9 % - $21,756 - Franklin CA Income Tax-Free A (FKTFX)(.57)
12.0 % - $20,279 - Vanguard 500 Index Inv (VFINX)(.17)

IRA - $106,503

13.6% - $14,485 - Fidelity Cash Reserves (FDRXX)(.34)
1.8% - $1,936 - Fidelity Spartan Index (FUSEX)(.10)
63.7% - $67,816 - Fidelity Mid-Cap Stock (FMCSX)(.85)
3.1% - $3,306 - Fidelity Magellan (FMAGX)(.53)
2.4% - $2,600 – Fidelity Growth & Income (FGRIX) (.71)
9.8% - $10,460 - Franklin U.S. Government Securities (FKUSX)(.72)
5.5% - $5,900 – Individual Stock

Other Income
Social Security - $2,200 per Month

Monthly Expenses
Total $2,000

She does not have a concept of AA. I believe she should be 25%/75% Stocks/Bonds. She appears to have too much cash and improper AA i.e. high Mid-Cap holdings etc. I believe she should be invested in something similar to the Vanguard Target Retirement Fund (VTINX).

Thank you for your assistance.

[Johm221122]

Target retirement income would make things simpler and put them on autopilot .But how much capital gains would she have to pay?It seems like good idea especially for Ira and taxable funds with no large tax hit
John

[letsgobobby]

Her expenses are less than her SS income, so what's the problem? Seems like her portfolio, while far from ideal, does meet her stated goals, more or less.

[donall]

Her expenses are less than her SS income, so what's the problem? Seems like her portfolio, while far from ideal, does meet her stated goals, more or less.

+1
80 year olds often have a difficult time with change. I would only make changes if there is a gross problem (high fees, churning of account, etc.) or you were specifically asked to make changes, and then those changes should be in small steps. Seniors hate the idea of loosing control. As one 90 something told me when she was asked to wear a seat belt correctly, "I've made it so far without doing it right, so why should I change now?" No matter if you are right, it is hard to argue with someone who has this type of attitude.

[BL]

I agree that she has nothing seriously wrong with her portfolio, so would be cautious with recommending changes. Change can be difficult.

Having said that, perhaps combining the equities in IRA to the one Spartan fund might make sense (I think it is a total market fund).

I am wondering if she would like to have a monthly automatic transfer from cash, for instance, to her checking account. If she would be upset by seeing that money slowly erode, that may not be what she wants. However, an extra $ 500-1000 per month might "feel good" without doing too much damage at her age.

[Johm221122]

Does she have long term care insurance?

[Sheepdog]

Her expenses are less than her SS income, so what's the problem? Seems like her portfolio, while far from ideal, does meet her stated goals, more or less.

+1
80 year olds often have a difficult time with change. I would only make changes if there is a gross problem (high fees, churning of account, etc.) or you were specifically asked to make changes, and then those changes should be in small steps. Seniors hate the idea of loosing control. As one 90 something told me when she was asked to wear a seat belt correctly, "I've made it so far without doing it right, so why should I change now?" No matter if you are right, it is hard to argue with someone who has this type of attitude.

Has my wife been talking again about me?
Anyway, I agree with both of you.

[RocketIIIflyer]

Thank you for your comments. Her wishes are to sell the individual stocks, simplify her investments, and to generate has much monthly income as possible without depleting her principle.

[dbr]

Thank you for your comments. Her wishes are to sell the individual stocks, simplify her investments, and to generate has much monthly income as possible without depleting her principle.

It makes a big difference if that income and principle are computed in real dollars (corrected for inflation) or nominal dollars.

[BL]

Since she wants to do this, I don't think we have been particularly helpful, but there may be issues we are not aware of.
Long-term care is definitely an important issue if she does not have insurance. She could need large amounts quickly.

Vanguard Target Retirement Income is a reasonable choice and would generate some income. This would be a good simple solution.

There are other possibilities for some of her money such as Wellesley (?40% stocks) & Life Strategy Income (20% stocks), I-Bonds (tied up for 1 year), CDs, and many others such as high-yield bonds (junk!) (with higher yield comes higher risk). Most of the funds recommended here are Vanguard which has the lowest overall expense ratio, but Fidelity has good enough ones too if you want to stay there.

I would look at the taxable to see how much capital gains you have, and sell up to a certain amount (keeping within a zero percent capital gains tax, watching that income doesn't raise taxes on SS, etc.). Then sell the remaining in 2013. I would try one of the tax programs mentioned on this board to make sure you don't have unintended consequences taxwise.

[RocketIIIflyer]

Thank you all for your assistance. My Mother-in-law met with a Fidelity advisor after Christmas who advised the following:

Taxable:

Sell – Franklin CA Tax Free Income Class A (FKTFX) (.57)

Hold – Fidelity GNMA Fund (FGMNX) (.45)
Hold – Vanguard 500 Index FD Investor Shs (VFINX) (.17)

Buy – Fidelity High Income Fund (SPHIX) (.76)
Buy – Loomis Sayles FDS BND FD Retail (LSBRX) (.92)
Buy – PIMCO Diversified Income CLD (PDVDX) (1.15)
Buy – Fidelity Total Bond Fund (FTBFX) (.45)
Buy – Fidelity Strategic Income Fund (FSICX) (.70)

The advisor advocated investing remaining cash equally (20%) within the five funds.

IRA:

Sell – Fidelity Magellan (FMAGX) (.53)

Sell either:

Fidelity Mid Cap Stock (FMCSX) (.85) or
Spartan 500 Index FD Investor Class (FUSEX) (.10)

And hold the remaining fund.

Hold – Franklin US Gov’t Class A (FKUSX) (.72)
Hold – Fidelity Growth & Income (FGRIX) (.71)

Invest remaining cash equally in the following:

Fidelity Balanced Fund (FBALX) (.59)

And

Fidelity Total Bond Fund (FTBFX) (.45) or
Baird Core Bond Inv Cl (BCOSX) (.55)

According to the advisor, this AA in both her taxable and IRA accounts should allow her to make additional income of approximately between $7,605.00 and $10,000.00 per year (Depending on the amount invested of 165,000.00 or $250,000.00) in her taxable account and some protection and potential for growth as she takes her RMD from her IRA.

Any input as to the viability of this plan would be greatly appreciated.

[Dale_G]

Fidelity is a decent shop when it comes to their Spartan funds, but it is not the place to own generic bond funds. Excluding the taxable S&P 500 fund (which may have embedded capital gains), I would be moving everything to Vanguard.

In today's low interest environment it makes no sense to pay expense ratios of more than .22% for a bond fund. Your MIL could easily qualify for Admiral shares of bond funds at Vanguard with expense ratios of 0.1%.

Dale

[donall]

Thank you for your comments. Her wishes are to sell the individual stocks, simplify her investments, and to generate has much monthly income as possible without depleting her principle.

In reading the plan proposed by the advisor:
-no plan for selling of the individual stocks
-investments are not simplified, but are more complex
-not sure there will be more income without depleting principal (the plan predicts 4% to 4.6% additional income-to what she is currently earning, using higher expense funds)

If MIL is currently under spending, why does she need to generate as much monthly income as possible? What are the tax consequences of this plan? Does MIL have long term care insurance?

[Bob's not my name]

I don't sea why she kneads long term care insurance if she owns a house inn California and has almost a half million inn other assets and is currantly living below her means. Assisted living mite cost her $100,000/year, butt it seems like she could go more than a decade at that rate without depleting her principles (although her principal would be depleted).

[bdpb]

I don't sea why she kneads long term care insurance if she owns a house inn California and has almost a half million inn other assets and is currantly living below her means. Assisted living mite cost her $100,000/year, butt it seems like she could go more than a decade at that rate without depleting her principles (although her principal would be depleted).

Uh oh! Somebody must have said "Don't loose something or you will be without it."

[RocketIIIflyer]

While she is meeting expenses, she is interested in maximizing her income to have additional discretionary income (Travel, etc.). She does not have Long-Term Care insurance. Her biggest issue is where to invest her monies. Does the advisor’s advice to spread her taxable portfolio over five different bond funds make any sense along with the advisor’s other recommendations? What should her asset allocation be 25% Equities/75% Fixed Income? The composition of the equity portion seems straightforward, but the composition of the Fixed Income portion is the challenge. Again, thank you for any input.