Investing for 84 year old Mom

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Investing for 84 year old Mom

Postby tc1008 » Mon Jan 28, 2013 4:32 pm

Hello everyone!
I'm new to the forum and looking for some friendly advice. Mom, 84 years old, has a portfolio made up of Vanguard funds. She is leaving her apartment and moving into an Independent Living Facility. From what I calculate she will need to take about 5% of her Vanguard assets annually to take care of her month to month needs (that's in addition to her SS and a small pension). She's in relatively good health and we hope to have her around for a long time. Genetics are great. Looking to generate more income. The small equity holdings are basically leftovers. Over the last 6 or 7 years we have reduced those positions.
Any Ideas would be greatly appreciated. Thank you!

These are her current holdings in a taxable account.

VFSTX-Short Term Investment Grade 41%
Prime Money Market 30%
VFIJX- GNMA 20%
VHCOX- Capital Opportunity 3%
VWELX- Wellington 2%
VPCCX- Primecap Core 1%
VGHCX- Healthcare 1%
VDIGX- Dividend Growth 1%
VASVX- Selected Value 1%

I was reading a Forbes article about Dan Wiener's take on "A better retirement income fund" vs. "Vanguards Retirement Income Fund".
He has the following. Any thought on this? I'm open to any ideas.

GNMA- 45%
Infaltion protected securities- 20%
Short Term Investment Grade- 5%
Global Equity- 10%
Growth and Income- 15%
Convertible Securities- 5%

Here's a link to the Wienie article if anyone is interested. (I don't think I did the link correctly, sorry)
http://www.forbes.com/sites/investor/2012/05/08/vanguard-investors-building-a-better-target-retirement-income-fund/
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Re: Investing for 84 year old Mom

Postby damjam » Mon Jan 28, 2013 9:27 pm

tc1008 wrote:VFSTX-Short Term Investment Grade 41%
Prime Money Market 30%
VFIJX- GNMA 20%
VHCOX- Capital Opportunity 3%
VWELX- Wellington 2%
VPCCX- Primecap Core 1%
VGHCX- Healthcare 1%
VDIGX- Dividend Growth 1%
VASVX- Selected Value 1%

I was reading a Forbes article about Dan Wiener's take on "A better retirement income fund" vs. "Vanguards Retirement Income Fund".
He has the following. Any thought on this? I'm open to any ideas.

GNMA- 45%
Infaltion protected securities- 20%
Short Term Investment Grade- 5%
Global Equity- 10%
Growth and Income- 15%
Convertible Securities- 5%

You mother's current portfolio is over 91% fixed income since Wellington has some bonds in it as well as stocks. This is a very conservative portfolio. Possibly too conservative since a few studies have shown that holding at least 20% equities is best. Having a portfolio with more than 80% fixed income increases the risk of depleting a portfolio too quickly due to inflation. Given your mother's good genes this could become an issue.
The portfolio you are suggesting by Dan Wiener brings the equity portion of the portfolio from <9% to >15%. I don't consider that to be too radical a change. His suggested portfolio doesn't look unreasonable although I'm not that familiar with Convertible Securities in general and have no idea what purpose it serves in the portfolio. However I'm not sure this is the way I would go.

Have you considered a Immediate Fixed Annuity - SPIA? This could give guaranteed income for your mother's life. Given here age the annual payout should be decent and you may be able to purchase enough income without exhausting the portfolio. Using an online annuity quotation service, I found that a woman aged 84 could receive as much as $1034 a month for a contract purchase price of $100,000.00. If you decide to go this route please post questions here. Annuities can be tricky, there are several different types and you only want to get a SPIA and not be sold a different type of annuity. Vanguard is one option for a SPIA.

I hope this bumps up your thread so it catches the notice of others on the board so that you can get other opinions/options.
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Re: Investing for 84 year old Mom

Postby pkcrafter » Mon Jan 28, 2013 9:53 pm

Your mom's withdrawal rate is fine, but it would be helpful to know approx amount of assets and tax bracket. There is lots of tax inefficiency, but it may not matter if she's in the 15% bracket. Are there any tax-deferred accounts?


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Investing for 84 year old Mom

Postby Padlin » Tue Jan 29, 2013 4:02 am

84 sounds like a good time to look at SPIAs as suggested if she's not adverse to spending the $ to get one. Check the prices of the inflation adjusted too, you can get quotes through Vanguard.
Regards | Bob
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Re: Investing for 84 year old Mom

Postby tc1008 » Tue Jan 29, 2013 3:06 pm

I had not considered an annuity. I have/had the impression that annuities were a bad deal over 80 years of age. My ignorance? I'll have to take a look and study the SPIA. Also, mom is dead set (no pun intended) on preserving and leaving the current equity that she has to her 3 children. Fortunately, my siblings agree that this issue is not of importance. Our concern is, if her health declines and she needs a nursing home in the future, it may not take long for her assets to be depleted. There is about 300K ( in Vanguard) plus a 50K investment in a private real estate LP that pays about 7.5% interest. When the GP sells the property, she also shares in the profit, but there's no telling how long they will hold it. As far as her taxes go, definitely 15% or lower. There are no assets in tax deferred accounts. I would prefer to keep it simple. That's why I mentioned Wieners "A Better Retirement Income Fund" or other ideas along those lines. However, I'm not adverse to going in a different direction, although with my lack of knowledge of annuities, I'm inclined to steer away from them, at least until I get more info and a better understanding . Thank you all! Your input is much appreciated! Any other thoughts?
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Re: Investing for 84 year old Mom

Postby Padlin » Tue Jan 29, 2013 7:16 pm

If you do look at annuities, just figure on enough to cover bare expenses, the rate you get is based on her age so it shouldn't take too much $. If you put the rest in something simple, like a 3 fund portfolio or fund, she could use the dividends from that for extra cash and plan on leaving that to the kids down the road.
If an annuity seems to look okay, do make another post and get opinions on it's appropriateness. There are many here that know much more about them then I.
Regards | Bob
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Re: Investing for 84 year old Mom

Postby john94549 » Tue Jan 29, 2013 8:39 pm

I suspect you (and your Mom) know the "ins and outs" of fixed-income, but I suspect you'd better assume a worst-case scenario, i.e., your FI will decline not only in real (i.e., after inflation) terms, but also in absolute terms (especially after tax).

Expenses, on the other hand, will not. I shopped around for alternative living arrangements for my Mom (97) a couple of years back and was, frankly, taken aback by the annual increases in assisted living in her area (metro KC). Somebody apparently missed the memo on 2% target inflation. They were unbending; no guaranteed rate caps on services or basics (lodging/food).

Be careful.

PS: If it makes you feel good to have company, my Mom's GNMA fund (FUSGX) has also taken it on the chin over the past few months.
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