Help with elderly portfolio -- nearing end of draw down

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Compound
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Help with elderly portfolio -- nearing end of draw down

Post by Compound » Mon May 26, 2014 2:13 pm

Hello BH community. I've been reading posts on this website for a couple months and have learned a great deal from the wisdom regularly posted on these pages. I have made major modifications to my families' investment plan based upon advice posted here, combined with other readings. Many thanks.

My question concerns my grandparents' portfolio. It has recently come to my attention (long story) that their portfolio is becoming very drawn down. They are both in reasonable health for 92 (him) and 90 (her) years of age. They have approximately 100k in trad IRA accounts and about 200k in taxable. They get about 1500/mo from social security. She has long term care insurance to the tune of 3k/mo for 3 years, which would be used should she become unable to perform self-care (not currently at that stage). No other assets. Current expenses are in the 60-70k/yr range, primarily rent and food. Their money has been managed for a very long time by a financial advisor of their choosing. He currently has their asset allocation about 90% stocks, which seems incredibly high to me given their age and life expectancy (about 3 years for him and 5 years for her, according to SS website).

My question pertains to asset allocation. In people their age nearing the end of the assets, what asset mix makes the most sense? I'm convinced the high stock allocation seems wrong, as a major stock downturn would basically wipe them out. How would you recommend moving the money? Short-term treasuries? CDs? Money market? Small stock allocation? I'm sorry, but I don't have specifics as to which funds are available to them through the trad IRA accounts; I'm more looking for general advice. Any advice on what asset allocation seems correct for this scenario would be greatly appreciated.

(I'd love to see their expenses go down by moving in with family, but as of now, that is a non-starter.)

Retread
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Retread » Mon May 26, 2014 3:54 pm

It seems to me something has to be done with their expenses. That seems an awful lot for food and rent, and they are heading to being completely wiped out in about five years or less. SPIA's would make sense here, but they are past the age of issue for these policies. The only steps I can see are to curtail expenses. Getting rid of the financial advisor would be a good first step. They have no business being 90% in stock.
Bruce
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Ged
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Ged » Mon May 26, 2014 4:12 pm

The asset allocation is completely unsuitable.

An audit of expenses plus getting rid of the adviser would be the reasonable course of action at this point.

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midareff
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Re: Help with elderly portfolio -- nearing end of draw down

Post by midareff » Mon May 26, 2014 4:22 pm

Compound wrote:Hello BH community. I've been reading posts on this website for a couple months and have learned a great deal from the wisdom regularly posted on these pages. I have made major modifications to my families' investment plan based upon advice posted here, combined with other readings. Many thanks.

My question concerns my grandparents' portfolio. It has recently come to my attention (long story) that their portfolio is becoming very drawn down. They are both in reasonable health for 92 (him) and 90 (her) years of age. They have approximately 100k in trad IRA accounts and about 200k in taxable. They get about 1500/mo from social security. She has long term care insurance to the tune of 3k/mo for 3 years, which would be used should she become unable to perform self-care (not currently at that stage). No other assets. Current expenses are in the 60-70k/yr range, primarily rent and food. Their money has been managed for a very long time by a financial advisor of their choosing. He currently has their asset allocation about 90% stocks, which seems incredibly high to me given their age and life expectancy (about 3 years for him and 5 years for her, according to SS website).

My question pertains to asset allocation. In people their age nearing the end of the assets, what asset mix makes the most sense? I'm convinced the high stock allocation seems wrong, as a major stock downturn would basically wipe them out. How would you recommend moving the money? Short-term treasuries? CDs? Money market? Small stock allocation? I'm sorry, but I don't have specifics as to which funds are available to them through the trad IRA accounts; I'm more looking for general advice. Any advice on what asset allocation seems correct for this scenario would be greatly appreciated.

(I'd love to see their expenses go down by moving in with family, but as of now, that is a non-starter.)

The primarily rent and food seems way out the ballpark. .. especially at ages where they are not expected to be eating out a great deal. Something is way wrong with those expense numbers. 90% equity is insane at that point of life.. advisor has to go. On the other hand $5K a month in expenses less SS is $3500 a month outflow on $300K. That's 85 months of income .. a bit over 7 years. I like the amount of savings on hand, don't at all like the AA. Short Term bonds and CD's at that age seems more like it.

retiredjg
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Re: Help with elderly portfolio -- nearing end of draw down

Post by retiredjg » Mon May 26, 2014 4:53 pm

You didn't say how much of their income comes from the portfolio, but it appears they may simply run out of money before they die.

Forget investment and asset allocation. And certainly forget about the "advisor" who has them in a completely inappropriate asset allocation.

These people need a SPIA (single premium immediate annuity). It is the best vehicle I know of if you may not have enough money to last your lifetime. They buy it and the annuity company pays them a certain amount of money for the rest of their lives. It is the only way I know of to get guaranteed income till death.

Unfortunately, another poster says they are too old for a SPIA, but I'd research that myself, just in case there is something new on the horizon.

Cutting expenses pretty much has to happen. If they simply won't do it, you'll have to wait till they run out of money and have no other choice.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by Sheepdog » Mon May 26, 2014 5:48 pm

retiredjg wrote:
Unfortunately, another poster says they are too old for a SPIA, but I'd research that myself, just in case there is something new on the horizon.
.
An SPIA is almost certainly out of the question, but a fixed term annuity is possible, 10 year or 15 year..

Yes, that allocation is horrible. At 80, I am at 24% stock (within Wellesley and Target Income) plus I have a short term bond fund, CDs and I Bonds and I have been receiving good income at low cost.
Our annual expenses are in their ball park, but I don't have rent to pay. Our expenses could be much lower if needed. We don't need NFL or symphony season tickets, for example. We don't need 2 cars. We don't need to eat out a couple of nights a week. We don't need to take big trips. We could do just fine on $40K...we just don't need to do so.
Question their expenses. Question their investments and their cost.. How much do they pay their advisor? Do they pay income taxes and how much? What about their healthcare? Medigap? Medicare Part D prescription plan, etc.
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Re: Help with elderly portfolio -- nearing end of draw down

Post by fposte » Mon May 26, 2014 5:56 pm

midareff wrote: The primarily rent and food seems way out the ballpark. .. especially at ages where they are not expected to be eating out a great deal. Something is way wrong with those expense numbers.
I'm wondering if they're urbanites who buy rather than cook; it's not uncommon in places like Manhattan, which would also explain the rent. If so, that's probably not a habit that'll change at this point.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by retiredjg » Mon May 26, 2014 5:57 pm

Sheepdog wrote:An SPIA is almost certainly out of the question, but a fixed term annuity is possible, 10 year or 15 year..
Hmm. Interesting.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by RadAudit » Mon May 26, 2014 6:01 pm

Compound wrote:My question pertains to asset allocation. In people their age nearing the end of the assets, what asset mix makes the most sense?
To answer the specific question, the general rule of thumb is either 100 - age or 110 - age, if I recall correctly. So as a place to start, the portfolio should have no more than 5% to 15% stocks. Additionally, when you get down to a holding of about 5% or less of a portfolio, the general idea is that a holding of that size can not contribute significantly to a portfolio and should be consolidated in to another holding; hence, the recommendations for CDs and short term bonds.

On the other hand, the Vanguard Life Strategy Income Fund is 20% in stocks and VG's Target Retirement Income Fund has 30% in stocks. But I'd guess both of those funds are for younger retirees so those allocations may be a little high for 90+ year olds.

But, whatever stock allocation you choose - 90% stocks is not one of the choices.
Last edited by RadAudit on Mon May 26, 2014 6:06 pm, edited 1 time in total.
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Buffetologist
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Buffetologist » Mon May 26, 2014 6:06 pm

The advisor may be counting the $$ $1500/mo as an annuity and valuing it as such. With a life expectancy of 5 years, and compounding rate of 2%, it's worth about $85K.

Still, $270K in stock and $115K (30K plus the 85K annuity value of SS) in fixed income is still a bit aggressive, in my opinion,

On the other hand, the advisor has done great so far, and the pot might be a lot smaller if he hadn't gambled and won.

Perhaps they don't want to sell the taxable stocks because they want you to have the stepped up basis.

Might be worth moving the IRA to short-term bonds and start drawing that down.

stan1
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Re: Help with elderly portfolio -- nearing end of draw down

Post by stan1 » Mon May 26, 2014 6:10 pm

If their expenses are that high are they living in a high end retirement community? In high cost areas those can easily run $4K+ per month.

They should be invested primarily in CDs. They should have no tolerance for market volatility. Unfortunately CDs are paying around 2% (maybe a little more if you get lucky and decide to go with a 5 year term).

Can the family contribute $1000/month to their living expenses, assuming they really can't lower them? That would go a long way.

This is never an easy issue to deal with. My mom is 80 and has mobility issues and a stubborn streak that makes it necessary for her to be in an independent living facility with 24/7 oversight to help her if she falls, becomes ill, and to make sure she eats properly. When she lived alone she did not eat properly and on two occasions spent days on the floor (one time with a GI infection) because she was too stubborn to call for help. Other than that she'll probably live another 15 years. She has about the same amount of money left as your grandparents, but we've been able to get her expenses down to around $24K/year (mostly because she lives in a very low cost of living area). I gift her about $600/month to augment her $700/month and $700/month IRA RMD's and interest. Her asset allocation is 80% CDs and 20% balanced fund. I was quite relieved to get in on Pentagon Federal 3% 5 year CDs back in January. Hopefully when they come due in 5 years interest rates will be higher.

Your grandparents do not have the ability to take risk in the equity market (and probably not in the bond market, either). My guess is the financial advisor responded to their requests to generate more income as interest rates have dropped. If you go through their investment paperwork you will almost certainly come across a form they signed that gives a verbatim transcript of their requests and the advisors actions (to protect the advisor from legal action). It is possible the advisor has been watching this for years and has been trying to actively manage their accounts to keep them afloat. If they've been in stocks since 2009 or 2010 the advisor has probably kept them from going broke. It is risky, though.

At that age life expectancy doesn't mean much. You have to look at their health. If they are in good health they could both live for 10+ more years.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by Calm Man » Mon May 26, 2014 6:13 pm

I don't think investments matter so much as (as somebody else pointed out) they will be wiped out in 5 years. If they need assisted living, well they won't be able to get it. They will be well covered by Medicaid if they need nursing homes. That is unless you can rachet their spending down by half. For investing, if you must a life strategy conservative fund (40/60) would be fine and I doubt these folks will ever contribute another $ of income tax for the rest of their lives. Good luck.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by bnes » Mon May 26, 2014 6:27 pm

At 90% stock this portfolio seems managed not for them, but for the heirs.
It's crazy risky for them living out the ends of their lives.
Their expenses are way high.

What are their goals? Is it important to them to leave something to the next generation, or not?
Last edited by bnes on Mon May 26, 2014 6:50 pm, edited 2 times in total.

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Re: Help with elderly portfolio -- nearing end of draw down

Post by SnapShots » Mon May 26, 2014 6:48 pm

Why are you involved? Why is it a non-starter for them to live with family?

Some of their money could be used to turn a garage into a separate living area in someone's home. It will increase the value of the home when they are gone, along with helping grandparents save money and providing them family support.

We have done a similar thing, with a daughter and grandchildren. The cost of remodeling a garage was surprisingly low. There are also Granny Houses that can be placed in backyards.

The KEY to living as a inter-generational family is separation. Everyone must have their own space. After experiencing this, which I NEVER thought I would do, I now wonder why we don't do it more in the United States. Other countries have always done it.
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Compound
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Compound » Mon May 26, 2014 9:36 pm

Thank you all for your replies -- they are very much appreciated. I will attempt to address the questions and comments raised as best I can and at the end will pose some new questions. (Note: I'm new at this forum and don't really know if I'm doing the quote function correctly, so I didn't try to thin out people's responses when I quoted the for fear I would screw something up. Therefore this post will be long -- if you'd like to just skip to my new thoughts and questions, please scroll to the end.)
Retread wrote:It seems to me something has to be done with their expenses. That seems an awful lot for food and rent, and they are heading to being completely wiped out in about five years or less. SPIA's would make sense here, but they are past the age of issue for these policies. The only steps I can see are to curtail expenses. Getting rid of the financial advisor would be a good first step. They have no business being 90% in stock.
Bruce
(and other who questioned expenses)

I completely agree -- expenses here are a major concern. Unfortunately they live in a very expensive area of the country (Bay Area) to be close to family, so I'm not sure how much leeway there is in terms of reducing expenses short of moving them in with family. I'm in the process of trying to tease out a complete budget from them, but much of this process is out of my hands as I am not the primary caretaker (sorry, it's complicated).
SnapShots wrote:Why are you involved? Why is it a non-starter for them to live with family?

Some of their money could be used to turn a garage into a separate living area in someone's home. It will increase the value of the home when they are gone, along with helping grandparents save money and providing them family support.

We have done a similar thing, with a daughter and grandchildren. The cost of remodeling a garage was surprisingly low. There are also Granny Houses that can be placed in backyards.

The KEY to living as a inter-generational family is separation. Everyone must have their own space. After experiencing this, which I NEVER thought I would do, I now wonder why we don't do it more in the United States. Other countries have always done it.
Moving in with family was my first suggestion when I learned about the situation. I will bring up the garage conversion idea, but my guess is this will be a no-go.

As to why I'm involved -- I was asked by my family to provide an opinion on if they can afford the assisted living facility that they were considering. That facility would have raised their budget even higher! That query allowed me to see their investment assets for the first time, and I was surprised (shocked) to see the state of their investments.
Ged wrote:The asset allocation is completely unsuitable.

An audit of expenses plus getting rid of the adviser would be the reasonable course of action at this point.
(and several others regarding getting rid of the adviser)

Removing the adviser is in the works, and is the primary reason I'm heavily involved at this point. I'm of the opinion that the adviser has not had their best interest in mind at all times. Case in point -- a not inconsequential portion of their portfolio is in CXP (a now publicly traded REIT that used to be a Wells REIT). David Swensen, in his book Unconventional Success, makes a case example out of Wells REIT for making Wells himself and the brokers who sold the REIT rich at the expense of personal investors. Swensen warns against getting involved in this type of investment. For this, and several other reasons, I think the adviser has to go. Selling that idea to my 92 year old grandfather who thinks his adviser walks on water is another matter.
Sheepdog wrote:
retiredjg wrote:
Unfortunately, another poster says they are too old for a SPIA, but I'd research that myself, just in case there is something new on the horizon.
.
An SPIA is almost certainly out of the question, but a fixed term annuity is possible, 10 year or 15 year..

Yes, that allocation is horrible. At 80, I am at 24% stock (within Wellesley and Target Income) plus I have a short term bond fund, CDs and I Bonds and I have been receiving good income at low cost.
Our annual expenses are in their ball park, but I don't have rent to pay. Our expenses could be much lower if needed. We don't need NFL or symphony season tickets, for example. We don't need 2 cars. We don't need to eat out a couple of nights a week. We don't need to take big trips. We could do just fine on $40K...we just don't need to do so.
Question their expenses. Question their investments and their cost.. How much do they pay their advisor? Do they pay income taxes and how much? What about their healthcare? Medigap? Medicare Part D prescription plan, etc.
I'm very interested in learning more about the fixed term annuity. Can you point me toward any resources to learn more about this instrument? Are they any companies in particular that we should consider purchasing through?

I am also thinking I need to see their tax forms based on your comments. I will ask about that.

Grandfather gets a good amount of healthcare through the VA for limited expense. I'm not sure about grandmother. I will look into their healthcare expenditures.
stan1 wrote:If their expenses are that high are they living in a high end retirement community? In high cost areas those can easily run $4K+ per month.

They should be invested primarily in CDs. They should have no tolerance for market volatility. Unfortunately CDs are paying around 2% (maybe a little more if you get lucky and decide to go with a 5 year term).

Can the family contribute $1000/month to their living expenses, assuming they really can't lower them? That would go a long way.

This is never an easy issue to deal with. My mom is 80 and has mobility issues and a stubborn streak that makes it necessary for her to be in an independent living facility with 24/7 oversight to help her if she falls, becomes ill, and to make sure she eats properly. When she lived alone she did not eat properly and on two occasions spent days on the floor (one time with a GI infection) because she was too stubborn to call for help. Other than that she'll probably live another 15 years. She has about the same amount of money left as your grandparents, but we've been able to get her expenses down to around $24K/year (mostly because she lives in a very low cost of living area). I gift her about $600/month to augment her $700/month and $700/month IRA RMD's and interest. Her asset allocation is 80% CDs and 20% balanced fund. I was quite relieved to get in on Pentagon Federal 3% 5 year CDs back in January. Hopefully when they come due in 5 years interest rates will be higher.

Your grandparents do not have the ability to take risk in the equity market (and probably not in the bond market, either). My guess is the financial advisor responded to their requests to generate more income as interest rates have dropped. If you go through their investment paperwork you will almost certainly come across a form they signed that gives a verbatim transcript of their requests and the advisors actions (to protect the advisor from legal action). It is possible the advisor has been watching this for years and has been trying to actively manage their accounts to keep them afloat. If they've been in stocks since 2009 or 2010 the advisor has probably kept them from going broke. It is risky, though.

At that age life expectancy doesn't mean much. You have to look at their health. If they are in good health they could both live for 10+ more years.
Thank you so much for the detailed post. There are a lot of gems here for me to consider. I will definitely inquire about the paperwork that details their requests and the advisor's subsequent actions. Your hypothesis about the advisor aggressively investing to keep them afloat is entirely possible. However, at this point, I think preservation of what we have left is key. I personally think the downside risk is too high to maintain a high stock allocation.

And yes, I'm considering how we are going to try to make this sustainable should they outlive the SS estimated 3-5 years, which is entirely possibile as they are both in relatively good shape. I think your idea of some sort of family contribution will likely come into play. I'm convinced by your post and several others that I need to dig deeper and get a much better idea of what their monthly budget actually looks like.
Calm Man wrote:I don't think investments matter so much as (as somebody else pointed out) they will be wiped out in 5 years. If they need assisted living, well they won't be able to get it. They will be well covered by Medicaid if they need nursing homes. That is unless you can rachet their spending down by half. For investing, if you must a life strategy conservative fund (40/60) would be fine and I doubt these folks will ever contribute another $ of income tax for the rest of their lives. Good luck.
Thank you for the luck wishes -- feels like we need it at this point. Can you elaborate on the Medicaid comment? How does that work? Is it the nursing home an indefinite benefit? Are their costs associated that we need to keep in mind?

Thanks so much to everyone who has posted! Your thoughts are deeply appreciated. Below is an action plan that I've drawn up for myself to help guide next steps.

1. Learn grandparents' expenses in detail. Trim all non-essential spending.
2. Try to convince family to have grandparents move in. I think this is unlikely, but I maintain hope.
3. Get funds out from umbrella of investment adviser. Convert taxable funds to CDs of varying maturities to cover anticipated expenses (along with RMD from IRA funds). Transfer IRA funds to a low-cost short-term treasury bond fund. Use withdrawals on IRA to fill up CDs. An alternative would be to get into a fixed duration annuity (10 or 15 year) if doable.
4. Discuss with family a plan to contribute to keep them afloat for longer or alternatively how we will handle if they outlive their current assets.

Questions:
- Does this seem like a reasonable course of action moving forward?
- If they don't qualify for a 10-15 yr fixed duration annuity that covers expenses (or we can't afford one that does), do my plan for how to handle their accounts make sense to you (point 3)? Would you recommend doing things differently?
- Is there anything I am missing that you would recommend incorporating into the action plan?

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Sheepdog
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Sheepdog » Mon May 26, 2014 10:55 pm

Compound wrote
I'm very interested in learning more about the fixed term annuity. Can you point me toward any resources to learn more about this instrument? Are they any companies in particular that we should consider purchasing through?
I purchased a 15 year fixed term immediate annuity through http://www.immediateannuities.com in July 2012. It is a very reliable firm. They have quotes from 20 or more insurance companies. The best quote for me at that time was from Penn Mutual. Fixed term annuities were available in 5 to 30 years in 5 year increments. If the annuitant dies before the term is complete, the remainder goes to their heirs. So age is not really a factor. In my case, my wife is the heir, followed by my children. it will pay until July 2027. (I also have purchased a life annuity through North American Insurance through them.)

I went to the immediate annuity website tonight and I found it to have changed. Previously, I could get an good estimate directly, but now it says to call 1-800-872-6684 to get the most current quote. I suggest that you call that number to get quotes. As I said, they are reliable and honest. They give absolutely no pressure, no follow up calls, etc. unless you ask for it. A good number of Bogleheads have purchased annuities from them. (I also purchased a life annuity from North American Insurance through them.)

In searching the site I found that in April this year a 5 year $100,000 fixed term was quoted to pay an average of $1679 a month for 5 years. A 10 year was quoted at an average of $902 a month for 10 years. A 15 year was quoted at $664 a month for 15 years. Those quotes would not be effective today. They may be higher or lower.
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Re: Help with elderly portfolio -- nearing end of draw down

Post by michaelsieg » Mon May 26, 2014 11:32 pm

Buffetologist wrote:
On the other hand, the advisor has done great so far, and the pot might be a lot smaller if he hadn't gambled and won.

I agree that the AA is completely against conventional wisdom, but one could even go a step further than Buffetologist and say that probably they would be running out of money now if their advisor (by pure luck) had not been invested in an insanely high equity AA during a 6 year very strong bull market.
I did a quick reverse calculation to estimate, how much equity they had in 2009, assuming a 100% equity AA and 70k yearly consumption starting from today's 300k in assets. I took the returns of the Vanguard TSM admiral shares and subtracted 70k annualy. Guess what, in the beginning of 2009 they would have had $ 368195 - if you account for 10% bonds and advisor fees and a more expensive fund than VTSAX, they probably had around 400k in 2009. Unbelievable, that starting with 400k and using 70k a year leaves you with 300k after 5 years! If their money had been invested conservatively, they would run out of money now or within the next few months.
I agree that a fixed term annuity is a good option to look into...

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Re: Help with elderly portfolio -- nearing end of draw down

Post by lululu » Mon May 26, 2014 11:35 pm

I think rent is probably the budget-wrecker, due to being in the bay area. Prescription costs may be a factor; even with Plan D, I shell out thousands a year for expensive generics.

But definitely worth looking at their spending, moving into safer savings, looking at living with family, and the family contributing monthly or quarterly. I think the latter should start now, so they will see this as "help" vs. letting them run out of money and having them feel "dependent."

My grandparents lived with us in a one-story duplex, so privacy was maintained but help was at hand if they needed it.

The oldest person in the U.S. is 115, I believe.
Last edited by lululu on Tue May 27, 2014 4:08 am, edited 1 time in total.

michaelsieg
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Re: Help with elderly portfolio -- nearing end of draw down

Post by michaelsieg » Mon May 26, 2014 11:41 pm

Another thing to consider is that once people get up to 90 and are in reasonable health, their chance to get to 100 are much higher than the average population. In other words, a 5 year fixed term annuity might not cover their expenses as chances are, that at least one of them might live longer than 5 years. So cutting expenses is crucial at this point.

Compound
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Compound » Tue May 27, 2014 5:06 am

Sheepdog wrote:Compound wrote
I'm very interested in learning more about the fixed term annuity. Can you point me toward any resources to learn more about this instrument? Are they any companies in particular that we should consider purchasing through?
I purchased a 15 year fixed term immediate annuity through http://www.immediateannuities.com in July 2012. It is a very reliable firm. They have quotes from 20 or more insurance companies. The best quote for me at that time was from Penn Mutual. Fixed term annuities were available in 5 to 30 years in 5 year increments. If the annuitant dies before the term is complete, the remainder goes to their heirs. So age is not really a factor. In my case, my wife is the heir, followed by my children. it will pay until July 2027. (I also have purchased a life annuity through North American Insurance through them.)

I went to the immediate annuity website tonight and I found it to have changed. Previously, I could get an good estimate directly, but now it says to call 1-800-872-6684 to get the most current quote. I suggest that you call that number to get quotes. As I said, they are reliable and honest. They give absolutely no pressure, no follow up calls, etc. unless you ask for it. A good number of Bogleheads have purchased annuities from them. (I also purchased a life annuity from North American Insurance through them.)

In searching the site I found that in April this year a 5 year $100,000 fixed term was quoted to pay an average of $1679 a month for 5 years. A 10 year was quoted at an average of $902 a month for 10 years. A 15 year was quoted at $664 a month for 15 years. Those quotes would not be effective today. They may be higher or lower.
Thank you very much for the advice. We will look into this option. Based on the figures you found from April, this may work if we are able to trim expenses and/or add some family help.

Compound
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Compound » Tue May 27, 2014 5:12 am

lululu wrote:I think rent is probably the budget-wrecker, due to being in the bay area. Prescription costs may be a factor; even with Plan D, I shell out thousands a year for expensive generics.

But definitely worth looking at their spending, moving into safer savings, looking at living with family, and the family contributing monthly or quarterly. I think the latter should start now, so they will see this as "help" vs. letting them run out of money and having them feel "dependent."

My grandparents lived with us in a one-story duplex, so privacy was maintained but help was at hand if they needed it.

The oldest person in the U.S. is 115, I believe.

I very much like your approach to focusing on the psychological aspects of financial assistance. Once I have their budget well at hand, I will bring up the idea with family. It's interesting how much psychology comes into play with decisions like these -- makes for some very delicate situations.

And 115... uh oh.

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SnapShots
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Re: Help with elderly portfolio -- nearing end of draw down

Post by SnapShots » Tue May 27, 2014 6:49 am

Regarding Medicaid. Each state has it's own rules but Medicaid pays for long-term nursing home care and medications, indefinitely.

In my state a spouse is allowed to keep approximately $25,000 in cash and living expenses of $2,000 per month. If there is a home, the spouse can stay in the home and Medicaid does not take that asset and they can keep a car. They are allowed $1,500 for burial. My understanding, some states want to be paid back when the home is sold.

I had a family member with a spouse who required nursing home care. They had few assets, approximately $60K in an IRA and did not own a home. We placed the family member in a nursing home and after spending the $60K down to $25K, we flipped him over to Medicaid.

The spouse was my mother and I'm the only child. We moved her to our town and purchased a house where she lived rent free and about that time she inherited another $60K. We helped her financially by paying her utility bills, property taxes, home insurance and other incidentals such as car repairs. She paid HOA fees, yard, cable, auto insurance among a few others. Between her social security of approx $2K, the inheritance and our contribution $600+/mo; the money she had lasted almost 10 years, when she passed away there was about $25K left.

We had the bills come to our house and paid them directly for my mother's self-respect. She never saw the bills. I tried giving her money but she was to proud to take it. Toward the end, as her bank account began to shrink, she was terrified at the thought of having no money. She never wanted to be a burden on anyone.

Her biggest expense was healthcare. Medications and Medicare insurance used all her social security money plus some. There were several hospitalizations and Medicare covered all those costs.

The cost of medications were so high, I eventually started buying drugs from Canada. Especially, when she hit the donut-hole. Some of the drugs were cheaper than her co-pays.

If I had it to do over, I would move my mother in with my husband and I. At the time I was concerned about the disruption it would cause myself. And, the idea about converting the garage into a separate apartment, or installing Granny House did not occur to me. As she became more frail, it would have been easier and cheaper to have her living with us.

I hope there are expenses that can be cut. It's expensive to get old even with Medicare.

EDIT: We added a carport after converting the garage into a separate living area. We live in a hail prone area where the summers are hot and need vehicle cover.
Last edited by SnapShots on Tue May 27, 2014 7:32 am, edited 3 times in total.
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Buffetologist
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Buffetologist » Tue May 27, 2014 6:56 am

Make sure that you take into account the taxes owed on the IRA and on any capital gains that you realize. Depending on the cost basis (my MIL has stock with a cost basis that is basically zero), it might be the last thing that you touch.

Compound
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Compound » Tue May 27, 2014 8:39 pm

SnapShots wrote:Regarding Medicaid. Each state has it's own rules but Medicaid pays for long-term nursing home care and medications, indefinitely.

In my state a spouse is allowed to keep approximately $25,000 in cash and living expenses of $2,000 per month. If there is a home, the spouse can stay in the home and Medicaid does not take that asset and they can keep a car. They are allowed $1,500 for burial. My understanding, some states want to be paid back when the home is sold.

I had a family member with a spouse who required nursing home care. They had few assets, approximately $60K in an IRA and did not own a home. We placed the family member in a nursing home and after spending the $60K down to $25K, we flipped him over to Medicaid.

The spouse was my mother and I'm the only child. We moved her to our town and purchased a house where she lived rent free and about that time she inherited another $60K. We helped her financially by paying her utility bills, property taxes, home insurance and other incidentals such as car repairs. She paid HOA fees, yard, cable, auto insurance among a few others. Between her social security of approx $2K, the inheritance and our contribution $600+/mo; the money she had lasted almost 10 years, when she passed away there was about $25K left.

We had the bills come to our house and paid them directly for my mother's self-respect. She never saw the bills. I tried giving her money but she was to proud to take it. Toward the end, as her bank account began to shrink, she was terrified at the thought of having no money. She never wanted to be a burden on anyone.

Her biggest expense was healthcare. Medications and Medicare insurance used all her social security money plus some. There were several hospitalizations and Medicare covered all those costs.

The cost of medications were so high, I eventually started buying drugs from Canada. Especially, when she hit the donut-hole. Some of the drugs were cheaper than her co-pays.

If I had it to do over, I would move my mother in with my husband and I. At the time I was concerned about the disruption it would cause myself. And, the idea about converting the garage into a separate apartment, or installing Granny House did not occur to me. As she became more frail, it would have been easier and cheaper to have her living with us.

I hope there are expenses that can be cut. It's expensive to get old even with Medicare.

EDIT: We added a carport after converting the garage into a separate living area. We live in a hail prone area where the summers are hot and need vehicle cover.
Thank you for sharing your experience. It helps to know other families have dealt with similar situations before.

Once I've become fully appraised of the situation (reviewed expenses, etc.), and determine the need for a family contribution (I'm expecting there to be a need or at least a strong case for it), I will suggest your idea to my family about us taking over paying some monthly bills directly, such that my grandparents will never see. I think that is a great idea, as my grandparents are proud people (and deservedly so, if I do say myself) who I'm certain would prefer to pay for all themselves. Lessening the psychological blow of needing assistance is called for in this situation.
Buffetologist wrote:Make sure that you take into account the taxes owed on the IRA and on any capital gains that you realize. Depending on the cost basis (my MIL has stock with a cost basis that is basically zero), it might be the last thing that you touch.
Yes. Will look into tax implications of all transactions. I'm assuming the cost basis is quite small in this scenario as well. I believe that will be an issue with the idea of a purchasing a fixed annuity presented earlier in the thread (meaning taxes would take out a sizable chunk of the assets if we were to sell all they have in one year to unwind the stock position and buy the fixed annuity). I need to look into this more.

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Dale_G
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Re: Help with elderly portfolio -- nearing end of draw down

Post by Dale_G » Tue May 27, 2014 10:04 pm

I see no justification for a fixed term immediate annuity. In Sheepdog's example (with April rates) you give the insurance company $100,000, and over the next five years they return monthly payments totaling $100,740 (payments from fixed term annuities stop at the end of the term). I didn't compute the interest rate, but it is less than 1%. There is some potential asset protection from creditors, but giving up liquidity for such paltry returns seems unreasonable to me. CDs or high yield savings accounts make more sense.

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stan1
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Re: Help with elderly portfolio -- nearing end of draw down

Post by stan1 » Wed May 28, 2014 6:52 am

Yes, there is a cautionary note on annuities and some of the enthusiasm for them may be dated. They turned out to be a very good deal for people who bought them 10 years ago because insurers were not expecting low interest rates, but today you are locking in current interest rates for the life of the insured. You have to look at the quotes for your situation but compare them to other safe alternatives such as a CD. If interest rates go up and you have a CD ladder income will also go up. With that said I did not ladder my mom's CD's; following the sale of her house in January I figured I'd better put most of her assets into a 5 year 3% PenFed CD because 1 and 2 year rates were much lower and with the 3% yield plus SS plus RMDs from IRA plus gifts she can come close to meeting expenses. My gamble will have been a mistake if I can't get new CDs in 2019 at an interest rate higher than 3%.

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