Helping my parents with their retirement

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Biotech3
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Helping my parents with their retirement

Postby Biotech3 » Wed Oct 05, 2016 6:28 pm

Hi All,

My parents are nearing retirement soon, and I wanted to get some advice here on how to get their finances together. They have asked me to start looking into it but are very cryptic with what they have.

Currently, I believe that they have their finances handled by some manager and I am afraid they are taking a lot in fees from them; I was able to briefly look at them a while ago and it looks like there are a lot of funds with high expense ratios.

My dad is a federal worker and will receive a pension of I believe 80-85% of his current salary. Besides this, I do not think he has much saved for retirement. He will probably want to work for another ~ 5 years.

My mom is a nurse and is planning to retire August 2017. I believe that her account has somewhere ~ $500k to $750k. Additionally, her company has traditionally given their employees with 20+ years of service a $500k to $750k payout upon retiring.

My question is what information do I need to ask them in order to start getting their finances together and what are some steps that I can potentially take between now and August to ensure that they are set up for success?

I believe that their "mandatory" expenses in retirement are going to be minimal, but want to make sure that they are covered.

Any advice would be greatly appreciated!

joebh
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Re: Helping my parents with their retirement

Postby joebh » Wed Oct 05, 2016 6:57 pm

Biotech3 wrote:My parents are nearing retirement soon, and I wanted to get some advice here on how to get their finances together. They have asked me to start looking into it but are very cryptic with what they have.

My question is what information do I need to ask them in order to start getting their finances together and what are some steps that I can potentially take between now and August to ensure that they are set up for success?


You need to ask them pretty much everything. Right now you having nothing substantive.
- when do they want to retire?
- what do they want to do in retirement?
- where?
- how much will their retired life cost?
- how much do they have saved?
- in what forms?
- what kind of legacy do they want to leave?
- do they have long-term care covered?
- what kind of risk-tolerance do they have?
- how much guidance/help do they want from you?
- do they have their estate planning, wills, etc in order?
- why are they being very cryptic?
- have they thought about when to start collecting social security?
- do they know how much they can collect?
- etc, etc.

Biotech3
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Re: Helping my parents with their retirement

Postby Biotech3 » Wed Oct 05, 2016 8:38 pm

Thanks joebh! I will start with these questions and report back. To answer a couple of the questions:

- when do they want to retire?
mom wants to retire in 2017, dad wants to retire ~ 2020
- what do they want to do in retirement?
they do not travel or have expensive hobbies, nor do I see them wanting to do much of either
- where?
they will be staying put in the house that they have owned for 30 years in the greater SF Bay Area
- how much will their retired life cost?
I do not anticipate it will cost much, house paid for, no debt, etc.
- what kind of legacy do they want to leave?
besides life insurance, I do not think they plan on leaving a legacy
- what kind of risk-tolerance do they have?
I believe they are fairly risk averse
- how much guidance/help do they want from you?
as of right now, they are a little worried and have come to me to start looking into it. They don't know where to start so I assume they would trust any advice that I give them (whether it be to seek other advice, etc. They most likely are in the set it and forget it type of saving.)
- do they have their estate planning, wills, etc in order?
I do not think they have any of this planned.
- why are they being very cryptic?
I think that finance is kinda taboo for them, especially as I am their child, but now they have turned to me so I anticipate they will open up now that they have reached out.

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Peter Foley
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Re: Helping my parents with their retirement

Postby Peter Foley » Wed Oct 05, 2016 8:41 pm

Adding to joebh's etc, etc.,

Has your father contributed to the Thrift Savings Plan?
Does your mother have her funds in a 401k or 403b?

I find the retirement bonus of $500k + for a nurse to be a little incredulous. How is this paid out?

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FrugalInvestor
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Re: Helping my parents with their retirement

Postby FrugalInvestor » Wed Oct 05, 2016 9:05 pm

Biotech3 wrote:- how much will their retired life cost?
I do not anticipate it will cost much, house paid for, no debt, etc.


I would start by answering the above question in detail. It is crucial to retirement planning, especially when you're close to retirement. It's apparent from your answer that you know little about this, do your parents? You can't know if you can hit the bogey if you don't know what it is.

My wife and I are retired and have had a paid-off house and no debt for years, but I certainly wouldn't classify our financial needs as "not much." And we don't live in a high cost of living area.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

stgrimes
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Re: Helping my parents with their retirement

Postby stgrimes » Wed Oct 05, 2016 9:17 pm

Why do they have life insurance?

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Watty
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Re: Helping my parents with their retirement

Postby Watty » Wed Oct 05, 2016 9:27 pm

You could ask them for the information in this suggested format for portfolio questions.

viewtopic.php?f=1&t=6212

You might also get a couple of copies of one of the Bogleheads books and use that as a framework for your discussions.

https://www.amazon.com/s/?search-alias= ... Bogleheads

Biotech3
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Re: Helping my parents with their retirement

Postby Biotech3 » Mon Jan 02, 2017 5:58 pm

Hi All,

After spending the holidays with my family and starting to dig into their finances, I realized I may be in over my head and wanted to bump this thread. From what I have gathered, they have multiple taxable accounts with balances ranging from 20-100k, along with their retirement accounts (dad- TSP, mom-401K). They are very disorganized, (all paper and no electronic account information), making it very difficult to find exact balances or ERs or funds. My goal here is to consolidate everything into Vanguard so that they are in a better/simpler place financially.

stgrimes wrote:Why do they have life insurance?


I assume they have life insurance for when they pass and to help with any final expenses, I am not sure how much their policy is. I will definitely add this to the list of things to consolidate.

Watty wrote:You could ask them for the information in this suggested format for portfolio questions.

viewtopic.php?f=1&t=6212

You might also get a couple of copies of one of the Bogleheads books and use that as a framework for your discussions.

https://www.amazon.com/s/?search-alias= ... Bogleheads


I realize that there is still a lot of missing information here, but I am a little flustered as I am not sure where to start and am not sure that the suggested Boglehead format will ever come to fruition or help in their current situation. My goal for them is to have everything consolidated, as they are the type, regarding financial advisors, that "My balance is going up, they have to be doing something right, I'll just let them take care of it" I have been reading more on Robo-advisors and have looked into the Vanguard Personal Advisor Service. Would they be able to move and consolidate all of their accounts into something more manageable?

Any type of help here would be great! I know there are a lot of questions that have to answered/information provided in order for you all to help, but considering the current situation, do you have any suggestions? I would like to have them in a better place by the end of January, as my mom is going to be retiring in ~ October (her RN license is up and she does not want to renew it).

LeeMKE
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Re: Helping my parents with their retirement

Postby LeeMKE » Mon Jan 02, 2017 6:40 pm

I use Fidelity. One reason is that they have offices everywhere, and when questions arise, they can meet with someone to discuss.

Others will caution that Fidelity may try to sell a variety of products that cost money. In my experience, Fidelity has offered additional services, but not been the least bit pushy about it, and doesn't bring up the offers again. Their customer service is excellent. They've untangled a variety of transfer issues for me. And the advice they've given has saved us buckets of money, starting with noting an opportunity to convert IRA to ROTH during a short period when our tax bracket has been lower than it will be in retirement.

I'd be uncomfortable combining this many assets from such a variety of sources, for parents who are trusting that you know what you are doing. I've been managing my portfolio for a half century, and I would seek out help from Fidelity, and routinely refer friends and family to them. You can/should sit in with your parents in the meetings with Fidelity so they have an extra set of eyes and ears to both ask questions they might not know to ask, and remember details that may escape them in the rush of lots of new information.

From the little you've outlined, they are probably in pretty good shape, but some of the things you've listed sound a little too good to be true. The sooner you all get going on figuring this out, the better. It will take at least 10 months to set up their retirement plan from where you are starting now.

Once you have a clearer picture of the assets, this forum is a great place to return with questions we can help answer. But to be at all competent in advising you, we really need a complete picture of their situation. It would be fool hardy to make recommendations with less than all the assets identified and correctly described.

Good luck!
The mightiest Oak is just a nut who stayed the course.

delamer
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Re: Helping my parents with their retirement

Postby delamer » Mon Jan 02, 2017 7:15 pm

As others have noted, you can't give your parents good advice if they won't tell you all of their assets and sources of income. I would tell them that, and that you won't do anything further until you have the full picture. Parents can be weird about giving their children access to their account information, even when they have requested help like yours have. So I think you have to make it clear that they can't have advice without full disclosure.

As long as they have paper statements, you can get the information that you need. The trick is making sure you get statements for everything. Also, it is easy to estimate your father's pension if you know his years of service, annual salary, and whether he is FERS or CSRS.

I would not be too quick to move assets out of the TSP. The fees are rock bottom and there are a decent number of funds, without being so overwhelming that it is hard to choose.

Yes, they could move all their assets to Vanguard and use its advisory service. They can't consolidate (as in merge into one) your mother's 401(k) money and your father's TSP money into one account, since they are individually owned, but they could have their individual accounts plus a joint taxable account all in one place. Vanguard will initiate (pull) the transfers for them, once the proper paperwork is in place. They don't have to ask their manager or other current assetholders to move (push) anything.

It is important that they get wills, trusts, and end-of-life documents in place sooner rather than later. But that process will go better if they have a list of all their assets.

Dottie57
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Re: Helping my parents with their retirement

Postby Dottie57 » Mon Jan 02, 2017 8:08 pm

Tsp information
https://www.bogleheads.org/wiki/Thrift_Savings_Plan
Towards the bottom of the page it gives TSP equivalents of the three fund portfolio. No need to transfer out to another entity.

Biotech3
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Re: Helping my parents with their retirement

Postby Biotech3 » Mon May 29, 2017 5:38 pm

Hi All,

I know it's been a while since this thread was last active, but I finally have some additional information and hoping to get your help with helping my mother retire, as it is getting very close to her retirement. Please see stats below:

Mom 401K: 714K in Vanguard
Mom Pension: 493K
Mom tIRA: 16K in Morgan Stanley
Mom Taxable: 67K in Putnam Investments (actively managed)

I bolded her pension as this is what I am hoping to get the most immediate answer on. This is through the California Nurse's Association and they are requesting information on whether she would like a lump sum payment that would go directly into a tIRA or an annuity with many many different options, although it looks like she is required to take a 50% joint that pays ~ 2600 a month with 50% benefit going to my dad if she were to pass away.

As for the tIRA and Taxable, I was planning on consolidating these into Vanguard. Would this be wise? I was also planning if it were wise, to take the lump sum pension and move it to Vanguard tIRA as well.

I am in the process of getting more information on the funds, etc. for her 401K as well as the other accounts, in addition to their budget in retirement, but was hoping I can start a discussion and best plan of action for her pension.

Thank you in advance for all your help!

jebmke
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Re: Helping my parents with their retirement

Postby jebmke » Mon May 29, 2017 5:46 pm

Biotech3 wrote:I bolded her pension as this is what I am hoping to get the most immediate answer on. This is through the California Nurse's Association and they are requesting information on whether she would like a lump sum payment that would go directly into a tIRA or an annuity with many many different options, although it looks like she is required to take a 50% joint that pays ~ 2600 a month with 50% benefit going to my dad if she were to pass away.

Don't immediately jump to the lump sum option. In my case, my lump sum option is not a good choice vs. an annuity.

Also, double check on her annuity options. Often there are annuity options for a single life annuity (her life only) on the condition that the beneficiary (dad) agrees. The default is normally there to protect the beneficiary. In my case, if my spouse agreed, we could select a higher monthly payment that would run for my life but stop when I died.

There are tools that can help determine if the lump sum is a good deal. If you can get the numbers for the annuity options people here can give you feedback on these. Another way to test the annuity option is to get a price on a purchased annuity using the lump sum to see how it compares to the pension annuity.
When you discover that you are riding a dead horse, the best strategy is to dismount.

delamer
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Re: Helping my parents with their retirement

Postby delamer » Mon May 29, 2017 6:18 pm

I suspect that your mother's pension is required to be paid out as an annuity with a 50% survivor's benefit for your father unless your father signs off on a different arrangement. Generally, the guaranteed pension will be a better deal than taking the lump sum, assuming your mother lives an average to above average life span. But to make the decision, you need to look at all the pieces of their finances.

You've made a lot of progress is gathering information since you first posted, which is great. In addition to the budget information, though, you still need to get details on your father's pension and any investments. It is unlikely that your father's pension will be as high as 80% of his salary, but it should be pretty easy to estimate.

As a rule of thumb, the best situation for retirees is to be able to cover their basic expenses through annuitized payments (pensions, Social Security, annuities). So if they can cover their expenses with your father's pension and any Social Security each of them will be receiving, then the decision on your mother's pension is more "neutral." If they will need more than that, then that argues for annuitizing at least some of your mother's pension.

The other big issue to take into account is the survivor's situation after one of them dies. Any Social Security or pension will decline for the survivor, probably more than the survivor's expenses will go down. So a decision that takes the survivor's situation into account is important.

Helo80
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Re: Helping my parents with their retirement

Postby Helo80 » Mon May 29, 2017 6:32 pm

In terms of your dad's pension, it's easy... do this....

1. What year did he start working for the federal government?
2. Was it continuous, or were there breaks in service?
3. Where does he live now? --- I see SF Bay area --- yeah, I think that's the highest locality pay in CONUS including HI.
4. What is his Grade and Step?

The first three you can probably answer on your own. The last one is trickier.

Biotech3
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Re: Helping my parents with their retirement

Postby Biotech3 » Tue May 30, 2017 12:44 pm

Hi All,

Thank you for bearing with me as information trickles in.

For my mother's pension, there is a single life annuity at 2897/month

For my Father's pension, it will be 1448 with Survivor benefits and 1609 without Survivor benefits. These estimates are for planned retirement in 2020. His TSP is at 263K. The only other investments and retirement assets that they have are listed above.

Their "strategy", is to "use" her pension as well as my dad's current income for the next 3 years until my mom turns 65 and can then file for SS and use that in combo with her 401K.

delamer
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Re: Helping my parents with their retirement

Postby delamer » Tue May 30, 2017 1:40 pm

So, taking the pensions with a survivor annuity they'll have $4000/month in pensions and about $1.1 million in savings. The savings should generate a safe 4% withdrawal, or another $3600/month. That means $7600/month, before Social Security. Any idea on the SS?

Of course, you'll need to make the same calculations for each of your parents as the survivor. Your father will be more disadvantaged (financially) as the survivor because your mother's pension will be cut almost in half and it is a bigger component of their joint income than his pension.

Biotech3
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Re: Helping my parents with their retirement

Postby Biotech3 » Sun Jun 18, 2017 10:56 pm

Hi All,

Thank you all for the helpful information. Currently, here is their budget, which is very eye-opening to me and concerning to me:

Mortgage: 100k left / currently @ 1100/month
Homeowner's insurance: 1000/year
Car payments: 460/month, 5 months left. 390/month, 36 months left
Car Insurance: 2050/year
Property tax: 5,100/year
Timeshare: 1,100/year
Parents life insurance: 495/year
TV: 180/month
Utilities (gas, electric, garbage): 284/month
Internet: 190/month (this looks wrong and can probably be pushed down to 40/month)
Cell phone: 225/month
Charity: 560/year
Food (eating out and groceries): 1,500/month (I have already told my parents that they eat out way to much and are slowly cutting back on this number).
Kitchen Remodel: 4,000 left @ 0% interest, paid off by 1/18.

If my mother were to take SS @ 65, I believe she said she would get the max or ~ 2,300/month.

Although I advised against it, I think they want to pull some money to re-do their floors. I know a remodel at this point might not be financially smart, but they have worked very hard and do wish to do this as one of their last big purchases. With this information, what would you guys recommend we do for the above-mentioned accounts and specifically for her pension? If any additional information is needed, please let me know and I can provide as soon as possible.

LeeMKE
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Re: Helping my parents with their retirement

Postby LeeMKE » Sun Jun 18, 2017 11:14 pm

I would suggest you start a new thread, with ALL the information requested for this type of post.

Many will not read through all the intermediate posts to get enough information to provide you the help sought, and others may jump right in without the complete picture because they won't read all the intermediate posts. Neither is in your best interests.

Here is the guideline again:
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212
The mightiest Oak is just a nut who stayed the course.

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BL
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Re: Helping my parents with their retirement

Postby BL » Mon Jun 19, 2017 9:17 am

I think taking the annuity rather than the lump sum should be the default for almost everyone, with some exceptions such as health or a really bad deal compared to lump sum.

In their case, the annuity is great since they otherwise could spend it and have very little left for their golden years. This would guarantee the income for the rest of their lives. If it has COLA inflation added, that is even better. Be sure to look at the income each would have as a survivor after the other one was gone. That may determine what % should be guaranteed for survivor. It sounds like your mother has had the greatest income.

I would trust advice given by Vanguard or Vanguard PAS over most other outfits who may have a conflict of interest. If doing it independently perhaps finding a balanced fund such as Target date (various possible dates or Income), Life Strategy Conservative or ?, Balanced fund, even active Wellesley or Wellington funds.) PAS would cost 0.30%/year and put her into funds at +- 0.10% ER so total cost would be about 0.40%, probably half or less of what she is paying right now.

Granted, most dealings at Vanguard would be by phone or computer, maybe PAS does video conferencing, I don't know. You could be named to deal with her accounts to make it easier. Otherwise she would have to get on the phone along with you to make changes or decisions. You could give Vanguard a call with some financial information available and learn what they suggest. Maybe just start with your Mom's finances first since she is nearest retirement and dad has TSP.

It is unfortunate they still have car loans at retirement age. Are they at a low rate? If higher, maybe some extra effort to pay them off is worth it. Perhaps cut some phone/cable/TV and eating out costs to help pay off at least one car.

Almost all of Vanguard's funds are low cost, while others usually have some that would work fine if you don't listen to advice by their advisers and stick to your decisions. I worry about people that are not quite sure, as they could be influenced to sign up for managers who put them into more expensive funds. That could be the cost of face-to-face advisers. Do you even have a nearby Fidelity or Schwab office?

Are both parents paying into Social Security? If not, there may be some reduction for survivor or spouse.
Usually we advise the higher SS income person delay as long as possible up to age 70, while the other may decide to take it earlier.

They should be able to look up predicted PIA amount at FRA (full retirement age ?66-67?) on SS website or use the calculator there. It may be based on working up to the date used for the estimate, so watch out for that.

delamer
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Re: Helping my parents with their retirement

Postby delamer » Mon Jun 19, 2017 10:31 am

Biotech3 wrote:Hi All,

Thank you all for the helpful information. Currently, here is their budget, which is very eye-opening to me and concerning to me:

Mortgage: 100k left / currently @ 1100/month
Homeowner's insurance: 1000/year
Car payments: 460/month, 5 months left. 390/month, 36 months left
Car Insurance: 2050/year
Property tax: 5,100/year
Timeshare: 1,100/year
Parents life insurance: 495/year
TV: 180/month
Utilities (gas, electric, garbage): 284/month
Internet: 190/month (this looks wrong and can probably be pushed down to 40/month)
Cell phone: 225/month
Charity: 560/year
Food (eating out and groceries): 1,500/month (I have already told my parents that they eat out way to much and are slowly cutting back on this number).
Kitchen Remodel: 4,000 left @ 0% interest, paid off by 1/18.

If my mother were to take SS @ 65, I believe she said she would get the max or ~ 2,300/month.

Although I advised against it, I think they want to pull some money to re-do their floors. I know a remodel at this point might not be financially smart, but they have worked very hard and do wish to do this as one of their last big purchases. With this information, what would you guys recommend we do for the above-mentioned accounts and specifically for her pension? If any additional information is needed, please let me know and I can provide as soon as possible.


It would really be helpful to have these numbers either all on an annual basis or all on a monthly basis, plus a total. And as previous commenter said, but expenses plus income sources and investments in one new post. The info is too scattered now.

Sandi_k
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Re: Helping my parents with their retirement

Postby Sandi_k » Tue Jun 20, 2017 1:39 am

One note about lump sum payouts vs. annuitized payments: some pension plans include health care costs in the lump sum calcs. So, if you elect the lump sum, you are forfeiting any future health care, possibly for her and your dad both.

For people with good coverage, or pre-existing conditions in the current world, this is something of which you should be very careful....and it's why I'll be taking the annuity when my time comes.

HIinvestor
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Re: Helping my parents with their retirement

Postby HIinvestor » Tue Jun 20, 2017 3:30 am

Be very careful about what your folks have to do to keep health insurance with either or both employers in retirement. With the fed govt, they will pay a big portion of medical premiums for medical insurance if you meet requirements and want it in retirement. It's important to look into these requirements early because they require you have insurance on all you and/spouse (if desired) for past 5 years thru date of retirement AND schools some pension survival benefit or spouse can't be covered. You have to check terms if you want insurance from nursing job to cover your folks in retirement.

Generally, the fed Med insurance plan is excellent and most want it in retirement. If you keep it, no need for MediGap or Medicare D Rx policies. Some folks opt to have it instead of Medicare B but many keep both insurance and Medicare B.


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