My 87 year old mother just inherited $200,000 - and just in the nick of time! Several years ago the forum helped me out in putting together an investment plan for her, which held her in great stead for many years, but her pot of money has dwindled to $50,000.
In any case, she is very healthy and lives in her own apartment. She gets social security checks monthly but still draws about $1500 a month from her invested money to meet all of her living expenses.
My question is this - what would you recommend that I do with the new cash? I am only concerned about her having money when she needs it (health issues down the road, assisted living if necessary, those types of things) and have no concerns for her heirs.
Her current investments are:
VG Infl Protected Bond fund $20,000
VG Total Bond fund $22,000
VG Total Stock Mkt fund $11,000
Money Market $ 2,000
87 yr old mom just inherited $200,000 - what to do with it?
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Re: 87 yr old mom just inherited $200,000 - what to do with
Perhaps 50-50 in the money market and Total Bond, adjust the percentages as desired.
Given her existing portfolio of $55,000 + $200,000 = $255,000, and her monthly withdrawals of $1500 x 12 months = $18,000, this gives an annual withdrawal rate of 7%.
Consider a SPIA with part of the money
Given her existing portfolio of $55,000 + $200,000 = $255,000, and her monthly withdrawals of $1500 x 12 months = $18,000, this gives an annual withdrawal rate of 7%.
Consider a SPIA with part of the money
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Re: 87 yr old mom just inherited $200,000 - what to do with
I'll go with the SPIA. At 87, she should get a very high payout rate, and since there is no bequest motive, that will be optimal to ensure that she doesn't run out of money.Raymond wrote:Perhaps 50-50 in the money market and Total Bond, adjust the percentages as desired.
Given her existing portfolio of $55,000 + $200,000 = $255,000, and her monthly withdrawals of $1500 x 12 months = $18,000, this gives an annual withdrawal rate of 7%.
Consider a SPIA with part of the money
Edit: according to "immediateannuities.com", she should be able to get almost $2500/month from a $200,000 SPIA at her age.
In theory, theory and practice are identical. In practice, they often differ.
Re: 87 yr old mom just inherited $200,000 - what to do with
If she needs $1500/month, $200k gives her 11 years of expenses (before inflation and taxes). I think she should stick with a rather conservative AA, and I see she is already at 20/80. I'd stick with that.
I think she should have at least a couple of years worth of living expenses in a cash reserve. If the market takes a downturn, she can live off of that rather than sell assets cheaply.
I assume she will be using a taxable account. Keep in mind the tax consequences of bonds in a taxable account (http://www.bogleheads.org/wiki/Principl ... y_of_bonds). She might consider I Bonds, TIPS, and/or muni bonds.
Beyond that, I'd say stick with the same plan you have implemented. Use TSM to cover the stock portion.
It might be a good idea to give this a read too: http://www.bogleheads.org/wiki/Managing_a_windfall
I think she should have at least a couple of years worth of living expenses in a cash reserve. If the market takes a downturn, she can live off of that rather than sell assets cheaply.
I assume she will be using a taxable account. Keep in mind the tax consequences of bonds in a taxable account (http://www.bogleheads.org/wiki/Principl ... y_of_bonds). She might consider I Bonds, TIPS, and/or muni bonds.
Beyond that, I'd say stick with the same plan you have implemented. Use TSM to cover the stock portion.
It might be a good idea to give this a read too: http://www.bogleheads.org/wiki/Managing_a_windfall
Re: 87 yr old mom just inherited $200,000 - what to do with
Raymond wrote:Perhaps 50-50 in the money market and Total Bond, adjust the percentages as desired.
Given her existing portfolio of $55,000 + $200,000 = $255,000, and her monthly withdrawals of $1500 x 12 months = $18,000, this gives an annual withdrawal rate of 7%.
Consider a SPIA with part of the money
! would forget the SPIA at 87 .. a waste of money. At $1500 a month draw she has sufficient money to draw through 101 years of age at a zero return on the money. Giving the money to an insurance company to keep when most likely 101 will not be achieved seems silly.
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Re: 87 yr old mom just inherited $200,000 - what to do with
Really? Since she could get the $1500/month for considerably less than $200K, without having to worry about running out of money, I'm not sure why that is a waste...midareff wrote:Raymond wrote:Perhaps 50-50 in the money market and Total Bond, adjust the percentages as desired.
Given her existing portfolio of $55,000 + $200,000 = $255,000, and her monthly withdrawals of $1500 x 12 months = $18,000, this gives an annual withdrawal rate of 7%.
Consider a SPIA with part of the money
! would forget the SPIA at 87 .. a waste of money. At $1500 a month draw she has sufficient money to draw through 101 years of age at a zero return on the money. Giving the money to an insurance company to keep when most likely 101 will not be achieved seems silly.
In theory, theory and practice are identical. In practice, they often differ.
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Re: 87 yr old mom just inherited $200,000 - what to do with
If you go the SPIA route, only invest enough to get a $1500 payout. Invest any remainder in something that includes some inflation protection and growth potential. Frankly, I'd keep it simple and use Vanguard Target Retirement Income for everything that doesn't go into the SPIA.
Re: 87 yr old mom just inherited $200,000 - what to do with
This is a good example of going broke owning bonds
Her asset allocation is 80% bonds to 20% stocks, she is living longer than expected and is going broke
Put it all in Vanguard Wellington (65% stock and 35% bonds).
If you literally believe in "age in bonds" a lot of other people are going to be in the same situation
Jack Bogle has modified his "age in bonds" to include the bond equivalent of guaranteed income in things such as Social Security.......Gordon
Her asset allocation is 80% bonds to 20% stocks, she is living longer than expected and is going broke
Put it all in Vanguard Wellington (65% stock and 35% bonds).
If you literally believe in "age in bonds" a lot of other people are going to be in the same situation
Jack Bogle has modified his "age in bonds" to include the bond equivalent of guaranteed income in things such as Social Security.......Gordon
Last edited by gwrvmd on Thu Aug 28, 2014 8:28 am, edited 1 time in total.
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