85 Year Old with $150K to invest

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new2this
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85 Year Old with $150K to invest

Post by new2this » Fri Jul 31, 2015 9:20 pm

My mom asked me for advice on how to invest a $150,000 windfall. She doesn't believe she will ever need the principal. She needs any income from the money to be non-taxable, but she doesn't want to invest in an annuity, which is what her investment adviser is suggesting. Anyone have any better ideas?
Thanks so much for any advice.

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joe8d
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Re: 85 Year Old with $150K to invest

Post by joe8d » Fri Jul 31, 2015 9:24 pm

85,just put it in an FDIC Online Bank Account.
All the Best, | Joe

dbr
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Re: 85 Year Old with $150K to invest

Post by dbr » Fri Jul 31, 2015 9:34 pm

Absolutely not in the annuity until it is understood what kind of annuity and exactly why. It could be in certain circumstances that would make sense, but chances are 99 out of 100 that suggestion is intended to line the pockets of the advisor. This fact also raises other issues regarding that advisor unless the air is cleared about where that suggestion is coming from.

Otherwise there is not enough information to say anything at all. Putting it in a bank account would be fine for now.

What is the reason the money can't produce taxable income? Note that you can probably find a bank account that pays so little interest that there would be no tax cost.

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BL
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Re: 85 Year Old with $150K to invest

Post by BL » Fri Jul 31, 2015 10:03 pm

You are asking a question that can't be answered in a vacuum.
Usually it is suggested to put a windfall in the bank (possibly online bank that pays 1% interest) and do nothing for a while, especially if it is due to the death of a family member. This page in the Wiki addresses windfalls:
https://www.bogleheads.org/wiki/Managing_a_windfall

Your mention of "her investment adviser" suggests that perhaps she has enough to cover her personal needs and this is just for heirs. Is this the case? It is something different if she is investing it for her needs or her possible long term care needs.

Not wanting taxable income is rather curious: does she have religious reasons against interest? Does she already have high enough income to be in a higher tax bracket and just doesn't want any more? Does she want tax-efficient funds such as Total Stock Market and/or Tax-free bonds?

Of course the adviser wants to sell an annuity! There is good money to be made, for the adviser. Not necessarily for your mother. Whoever inherits it would have to pay taxes instead of getting a step-up of capital gains.

trueblueky
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Re: 85 Year Old with $150K to invest

Post by trueblueky » Fri Jul 31, 2015 10:15 pm

+1 to tax-exempt bonds until she decides differently

Lafder
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Re: 85 Year Old with $150K to invest

Post by Lafder » Fri Jul 31, 2015 11:03 pm

How about tax managed balanced fund to minimize tax on growth?

It is very hard to have income that is not taxable. Any kids she wants to fund 529s for ? Anyone she wants to gift money to?

Why does she not want taxable income ?

As others are saying, little to no income may be the only way to have no taxable income. What is her tax bracket ?

lafder

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Raymond
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Re: 85 Year Old with $150K to invest

Post by Raymond » Fri Jul 31, 2015 11:24 pm

new2this wrote:...She needs any income from the money to be non-taxable, but she doesn't want to invest in an annuity, which is what her investment adviser is suggesting. Anyone have any better ideas?
Thanks so much for any advice.
Non-taxable? Depending on her income tax bracket, consider Vanguard Intermediate-Term Tax-Exempt Admiral (VWIUX).

If that's too risky, then an FDIC-insured account (savings or CD).

And for other advice - take the "investment pickpocket" behind the woodshed and give him a few lashes with a cat o' nine tails made of al dente organic gluten-free spaghetti :P

An annuity at 85? Seriously? Whatta jerk :greedy
"Ritter, Tod und Teufel"

camaro327
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Re: 85 Year Old with $150K to invest

Post by camaro327 » Sat Aug 01, 2015 5:26 am

I would go with the normal retirement income mix using these options:

20% in VTSAX
80% in a 3 to 5 year CD ladder with 1 year rungs (not brokerage CDs)

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Bogle_Feet
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Re: 85 Year Old with $150K to invest

Post by Bogle_Feet » Sat Aug 01, 2015 5:39 am

new2this wrote:My mom asked me for advice on how to invest a $150,000 windfall. She doesn't believe she will ever need the principal. She needs any income from the money to be non-taxable, but she doesn't want to invest in an annuity, which is what her investment adviser is suggesting. Anyone have any better ideas?
Thanks so much for any advice.
Run for the hills from that "investment adviser" she is dealing with. He is nothing more than a salesman in search of the highest commissions. Honestly, an annuity for an 85 year old might not even fall under the lowly legal suitability standard. It might be illegal to sell her an annuity. What type of annuity was he trying to sell her? I would contact the SEC to investigate if this character is attempting to break the law. It can't hurt to ask the SEC.

When it comes to advisers you get what you pay for. She is dealing with a non-fiduciary.

And who is she investing for? Herself or her heirs? Whoever it is she should be investing in simple index funds. It can be as simple as owning a total stock market index fund (or S&P 500 index fund) and a total bond market index funds. Investing is simple.

Paying taxes is a red herring. Yes you have to pay taxes with index funds but she will do better than the supposed tax-free alternatives that may GROW tax deferred but EVENTUALLY must be taxed at the HIGHER ordinary income tax rate when she takes out of it.

srj
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Re: 85 Year Old with $150K to invest

Post by srj » Sat Aug 01, 2015 7:19 am

Probably a bond fund. We don't know her tax rate to assess tax-free vs a broad market bond index. If she truly does not care about the principal she could put it into VTSAX.

That financial advisor sounds like she/he may be a crook. If I were you I'd look into what other advice that person's been giving.

dbr
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Re: 85 Year Old with $150K to invest

Post by dbr » Sat Aug 01, 2015 8:05 am

It is also conceivable that if she will never use the principal and doesn't want taxation that the money could be given away to whatever worthy recipients she might imagine being deserving of a gift, whether individuals or organizations. In fact as tax deductible contributions, she might reduce her tax costs.

JW-Retired
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Re: 85 Year Old with $150K to invest

Post by JW-Retired » Sat Aug 01, 2015 8:32 am

new2this wrote:She needs any income from the money to be non-taxable, but she doesn't want to invest in an annuity, which is what her investment adviser is suggesting. Anyone have any better ideas?
Needing the income to be non-taxable doesn't make a lot of sense but not wanting the annuity does.

Absent any further information, you could put it in a muni-bond mutual fund for her state. That will 100% meet her non-taxable income need and keep it away from her crooked adviser.
JW
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new2this
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Re: 85 Year Old with $150K to invest

Post by new2this » Mon Aug 03, 2015 2:43 pm

:o Goodness, I wasn't expecting so many answers so quickly. THANK YOU to everyone who took the time to reply. Many people had the same questions and suggestions, so I will try to respond to everyone at once here. I am supposed to go and talk to her about this tomorrow, and plan to consolidate all of these ideas and present her with several options.

The reason she said she didn't want taxes is because she is already earning enough income to put her in the 28% tax bracket. I think when you aren't having money withheld, the amount you pay in taxes seems like a lot more than it does when you have it withheld. I plan to explain to her that with the current low interest rates, probably a CD would end up with the same or better net results than a tax-exempt fund.

BL, thank you for the link. I've read it and it has great advice.

As many of you suspected, yes, she wants the money for her heirs.

Lafder, thank you for the suggestion of 529s and gifts. She has 2 grandkids who haven't yet gone to college, and 529s seem like a great idea. I also like the idea of the tax managed balanced fund for the rest.

Dbr, I think my mom might appreciate the charitable contribution angle, which will have the added advantage of reducing her taxes. I know she is very community-minded and might like the idea of being able to give more than usual.

Camaro327, your option sounds very reasonable. She is very comfortable with bank CDs, so she might pick that option.

Bogle_feet, I am pretty sure my mom won't check with the SEC, but I'm thinking I might. I too had questioned the ethics of recommending an annuity for an 85-year-old. FWIW, it was a Pacific Life product called Pacific Choice. Reading the prospectus now it says 85 is the maximum age they will sell it to. Hmm.

If I didn't mention you by name, I still appreciate your input. Everyone has given me some great suggestions. I plan to go and talk to her about this tomorrow, and I know she will do one of these suggestions or a combination of them.

This group is the best!!! :!:

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