Fathers settlement [Portfolio help]

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Topic Author
nowayout
Posts: 7
Joined: Sat Mar 23, 2013 4:01 am

Fathers settlement [Portfolio help]

Post by nowayout »

New here but I have been lurking for awhile. I have followed some advice from here before but now I have a particular issue I cannot find an answer for.

My father(60 year old) is horrible with money, he relies on social security and not much else. I have to help him get by. Anyway, he just received a settlement of about 175k and I need this money to last him. Is there any type of investment that I can have him put his money into that will let him draw about $600-700 a month from but still make him money at the same time?

Something preferably that would penalize him for taking out larger amounts.

Looking for this to last him till the end of time.
jimkinny
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Re: Fathers settlement [Portfolio help]

Post by jimkinny »

I think one approach might be to consider a lump sum life time inflation adjusted single premium annuity.

These annuities are explained on the Boglehead Wiki and on many other online sources. They are not a good choice for many, but for some they work very well.

jim
dbr
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Re: Fathers settlement [Portfolio help]

Post by dbr »

There is no investment that can deliver that income without being spent down over thirty years or perhaps even less than that.

The aforementioned SPIA might be a possibility. Today a 60 year old man can obtain about $500/month from a $100,000 investment and a 70 year old man about $650. Those are not inflation indexed, which would reduce the payout by maybe a third initially (just guessing -- those other numbers are actual quotes from immediateannuities.com).

It might be a moderately conservative portfolio of 40% stocks and 60% bonds would do for the time being with plans to buy into an annuity at a later age. This would require cutting back to a more modest withdrawal, perhaps half what you suggest.
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ruralavalon
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Re: Fathers settlement [Portfolio help]

Post by ruralavalon »

Welcome to the forum :) .

A Single Premium Immediate Annuity (SPIA) sounds like it might be appropriate for him.

Here are some sources for information or quotes:

Wiki article link: Immediate Fixed Annuity - SPIA .

http://www.forbes.com/2010/07/29/single ... dauer.html .

http://www.immediateannuities.com/ .

https://personal.vanguard.com/us/whatwe ... comparison .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
nowayout
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Re: Fathers settlement [Portfolio help]

Post by nowayout »

Am I over thinking this? $180,000 divided by 240 months (20 yrs) gives him $750 a month. That is zero interest on that money. Does a simple investment into a safe fund make better sense? Something like DBR mentioned above, 60 stocks 40 bonds.
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nedsaid
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Re: Fathers settlement [Portfolio help]

Post by nedsaid »

If your Dad is so horrible with money, I would consider some sort of an immediate annuity. If you had an investment portfolio, he would probably be tempted to tap it and in a few years have it all spent. I am often pessimistic about human nature. People with a lifetime of poor financial habits rarely become financially astute at age 60. I am concerned that in a few years, you would be back to bailing him out again.

With the annuity, he has a specific amount per month to work with for the rest of his life. There would be no ability to raid the principle. Whatever comes in or he has available will probably be spent. Also with an immediate annuity, you don't have to worry about getting the blame if an investment portfolio didn't perform the way your Dad thought it should.
A fool and his money are good for business.
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nowayout
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Joined: Sat Mar 23, 2013 4:01 am

Re: Fathers settlement [Portfolio help]

Post by nowayout »

Funny thing is as that I could probably tell him he wouldn't be able to take the money out and he would believe me. I am not sure I want to take that chance though.

Regarding the immediate annuity, is there any particular company I should invest with? I was just planning on having him go through Vanguard.
kitteh
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Re: Fathers settlement [Portfolio help]

Post by kitteh »

nowayout wrote:...My father(60 year old) ...Am I over thinking this? $180,000 divided by 240 months (20 yrs) gives him $750 a month. That is zero interest on that money. Does a simple investment into a safe fund make better sense? Something like DBR mentioned above, 60 stocks 40 bonds.
A lot of people live into their nineties. Don't forget inflation reducing the value of the $750.

Is the $175,000 taxable?

I did a little number crunching. For $175,000 earning 2%, a monthly withdrawal of $750 adjusted annually by 2% inflation, lasted about twenty years. At 4% inflation, it lasted 17 years. If it has to last 30 years and is earning 2% with 2% inflation, the initial monthly withdrawal is $500.
dbr
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Re: Fathers settlement [Portfolio help]

Post by dbr »

nowayout wrote:Am I over thinking this? $180,000 divided by 240 months (20 yrs) gives him $750 a month. That is zero interest on that money. Does a simple investment into a safe fund make better sense? Something like DBR mentioned above, 60 stocks 40 bonds.
60/40 (also I think I suggested 40/60) isn't safe in the sense of the way too simple arithmetic you have done above.

The simplest analysis of this problem has to be at least as complicated as this model:

http://www.firecalc.com [link typo fixed by admin LadyGeek]

Try out some scenarios and study the output that shows how the outcome can vary under different possible circumstances.

The way in which 40/60 is the safest alternative is that less than 40% has even more chance of running out of money depending on the withdrawal rate and time expected to be concerned.

An SPIA is the "safest" except that inflation needs to be taken in account.

I don't think there is a enough money here to support the desired income with high assurance of not running out of money and still being alive.
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