My dad needs my help.

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jakerm17
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My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 12:14 am

I'm fairly new to the community (about 2 years). I am writing to ask for advice on my father's situation.

He is 74 years old, retired, and recently divorced (about 9 months ago). He has been taking the divorce hard and is mentally occupied with that and some other personal issues he is dealing with. He has asked me to make some pretty big financial decisions for him and decide where to invest his money.

The details:
-He has 850 K in assets (825 in an IRA, 25 in a ROTH). The money is all currently un-invested and sitting with a small financial advisory group.
-10K in checking account
-He receives 2200/mo. in social security
-Total monthly expenses are approx. 2500/mo. (This includes a 1200/mo. mortgage)

Beyond the mortgage, he has no debt.

The Plan:
I am looking at several options for him.

1. Leaving the money with the financial advisor group - they charge 1% fees and are pushing some annuities pretty hard.
2. Financial advisory services with Vanguard (appointment set for Monday so will see what they offer)
3. One of the robo-services (Betterment, Wealthfront, etc.)
4. Finding a fiduciary and seeing what kind of plan they would offer.

My father my nature is frugal and conservative.
As for me, I am in my early 30s, young professional, and am comfortable with my own investing in the tens of thousands but to have to make a decision that will affect hundreds of thousands and my father's financial future feels like jumping into the deep end.

Thoughts?

Much appreciated!!

rob65
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Re: My dad needs my help.

Post by rob65 » Wed May 03, 2017 6:28 am

Don't do option 1. There is no need to pay a 1% management fee. Complicated isn't better and it isn't more diversified. Any annuity other than a single premium immediate annuity is an awful investment, and your father needs such a low withdrawal rate that I don't think he needs a SPIA.

Talk to Vanguard. They will give good advice. Something simple like the Vanguard Target Retirement Income Fund would work fine if you don't want to deal with rebalancing. 30/70 stocks to bonds, so conservative. Also, very diversified. Vanguard has plenty of other options if he wants to be more aggressive. The Vanguard Wellesley income fund might also be worth a look.

If he's very conservative, then some money could go in a CD ladder for safety, just don't ignore inflation risk.
Last edited by rob65 on Wed May 03, 2017 6:31 am, edited 1 time in total.

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CAsage
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Re: My dad needs my help.

Post by CAsage » Wed May 03, 2017 6:28 am

1) Avoid financial managers like the plague; the 1% they take is a huge chunk of expected future returns.
2) Easiest solution would be an index Target date retirement fund - super low expenses, age appropriate diversification, rebalance for you... Target 2020 or 2015.
3) An alternative would be 70% Total Bond fund, 30% Total stock or a similar balanced fund - again, look for index and low expenses.
4) Vanguard PAS can help if he needs more support or would rather not involve/burden you... Consider setting up a automatic withdrawals from the IRA as your Dad is over 70, and they became mandatory at 70.5.

There are excellent Wiki articles on this site about diversification, or three-fund portfolios to advise you!
Last edited by CAsage on Wed May 03, 2017 7:25 am, edited 1 time in total.
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NotWhoYouThink
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Re: My dad needs my help.

Post by NotWhoYouThink » Wed May 03, 2017 6:43 am

He has been taking his RMDs, right?

zuma
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Re: My dad needs my help.

Post by zuma » Wed May 03, 2017 7:23 am

jakerm17 wrote: 1. Leaving the money with the financial advisor group - they charge 1% fees and are pushing some annuities pretty hard.
2. Financial advisory services with Vanguard (appointment set for Monday so will see what they offer)
3. One of the robo-services (Betterment, Wealthfront, etc.)
4. Finding a fiduciary and seeing what kind of plan they would offer.

My father my nature is frugal and conservative.
As for me, I am in my early 30s, young professional, and am comfortable with my own investing in the tens of thousands but to have to make a decision that will affect hundreds of thousands and my father's financial future feels like jumping into the deep end.
Like others have said -- avoid #1.

I would also go for rob65's suggestion -- the Target Retirement Income fund (VTINX) which is 30% stocks and 70% bonds. One fund. An effective plan doesn't need to be complex.

Good luck.

Pops1860
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Re: My dad needs my help.

Post by Pops1860 » Wed May 03, 2017 9:16 am

jakerm17,

If this helps you and your dad get a handle on things, this is how I describe an annuity to relatives/friends when it comes up in discussions:

With a annuity, you give your money to someone else, and they give it (your money) back to you a little at a time, and they charge a fee for providing this service. So, if the person involved has spending issues (spendthrift lifestyle, diminished mental capacity, ...), then the annuity provides protection against spending down the financial assets too quickly. From your description of your dad, and noting the assets he has saved in his IRAs, I don't think this applies in your case.

There is an additional benefit to an annuity, the 'insurance' against out-living the financial assets even with reasonable withdrawal rates, but this is countered with the fact that you can also 'lose big' if you die prematurely and the company gets to 'keep' most or all of the remaining funds. For some people, this 'insurance' factor (and the associated risk) are deemed desirable (acceptable risk), so they purchase the annuity with this rationale. But again, with you dad's situation, I would suggest he has more than enough to last even an extended lifetime at any reasonable withdrawal rate, so again this reason would not apply in your situation.

Hopefully this helps you get your hands around the decision about annuities (and any thought of a 1 % AUM fee being justified), at least as I see how annuities work.

I agree with previous posters, a single conservative 'retirement' fund (30/70 stocks/bonds) would seem appropriate for your situation. Vanguard is a good place to start, see what they say.

If the IRAs do become self-managed (at Vanguard or another ethical firm), I would consider setting up some protections against elder fraud scams. This could be something as simple as you getting some monitoring oversight over your dad's accounts, specifically account activity (withdrawals!) alerts so you can quickly react to any suspicious activity. If your dad is asking for your help, this is one thing I would set up with his concurrence.

Also, RMDs are important, but I suspect his 'financial advisor group' has been doing this, but you should check to be sure.

EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 9:22 am

jakerm17 wrote: My father my nature is frugal and conservative.
As for me, I am in my early 30s, young professional, and am comfortable with my own investing in the tens of thousands but to have to make a decision that will affect hundreds of thousands and my father's financial future feels like jumping into the deep end.
jakerm17,

Welcome to Bogleheads.

I think your last statements are the key. Both of you are uncomfortable. I recommend CDs. If you get a 2-2.5% CD, and save the 1% advisory fee, you are doing quite well.

You father has ~ 0.5% withdrawal rate. That is shockingly low. He could justify any asset allocation between zero stocks and 100% stocks. However, both of you are uncomfortable investing at this point, so why take risk? Just get CDs, and sleep well at night. Maybe someday he will feel the need to take risk, but for now there is no need and no desire. So don't own stocks or bonds, enjoy the safety and simplicity of CDs.

I'm sorry for the loss of his marriage.

Best,
Ehe
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

aristotelian
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Re: My dad needs my help.

Post by aristotelian » Wed May 03, 2017 9:39 am

Don't let the amount of money bother you. If you are comfortable investing your own money in smaller amounts, the considerations are exactly the same when there are more zeroes.

I agree, Target Date or Lifestrategy Conservative Growth are good options. That is likely the best outcome you will get from a financial advisor, although it is more likely they will set you up with something complex with high fees that benefits them (while they can still claim that they are doing their duty as fiduciary).

EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 9:44 am

aristotelian wrote:Don't let the amount of money bother you. If you are comfortable investing your own money in smaller amounts, the considerations are exactly the same when there are more zeroes.
Technically true, but human behaviour can vary with portfolio size.
Son may have a desire to avoid a bad phone call if/when Dad gets statement shock. Relationship risk should not be neglected.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

aristotelian
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Re: My dad needs my help.

Post by aristotelian » Wed May 03, 2017 9:46 am

EHEngineer wrote:
aristotelian wrote:Don't let the amount of money bother you. If you are comfortable investing your own money in smaller amounts, the considerations are exactly the same when there are more zeroes.
Technically true, but human behaviour can vary with portfolio size.
Son may have a desire to avoid a bad phone call when Dad get's statement shock. Relationship risk should not be neglected.
I am not saying the investment strategy should be the same. It sounds like the dad is asking him to decide, whether it is bringing in a third party or DIY. Either way he is involved now. If he wants to be free from relationship risk, that is a separate question and the answer is probably to get out of it completely.

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knpstr
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Re: My dad needs my help.

Post by knpstr » Wed May 03, 2017 9:51 am

Best option would be to invest with Vanguard under their guidance.

If you (or your dad) are uncomfortable with this option of essentially "doing it yourself" and are more comfortable with help, the next best option would to stay with a local financial adviser, despite the high costs. It looks like this is what he has done his whole life and despite the high costs he managed to position himself well in retirement.

The good news is that SS covers ~88% of his expenses.
His $850,000 will fund his $3,600 yearly shortfall for 236 years. So he should be good to go until he is 310 years old
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 9:58 am

aristotelian wrote:
EHEngineer wrote:
aristotelian wrote:Don't let the amount of money bother you. If you are comfortable investing your own money in smaller amounts, the considerations are exactly the same when there are more zeroes.
Technically true, but human behaviour can vary with portfolio size.
Son may have a desire to avoid a bad phone call when Dad get's statement shock. Relationship risk should not be neglected.
I am not saying the investment strategy should be the same. It sounds like the dad is asking him to decide, whether it is bringing in a third party or DIY. Either way he is involved now. If he wants to be free from relationship risk, that is a separate question and the answer is probably to get out of it completely.
I get your point. However, given that Dad have been paying 1% advisors, how well informed could he be? In my experience, relationship risks only arise when money is lost. CDs avoid that, and would avoid the vast majority of relationship risk. I supposed the Son's preferred bank could provide bad customer service and Dad would blame son, but that seems unlikely and far less severe than a 30/70 portfolio that drops 10% year over year. "Sorry Dad the conservative portfolio I chose lost $80k last year."
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

aristotelian
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Re: My dad needs my help.

Post by aristotelian » Wed May 03, 2017 10:03 am

EHEngineer wrote: I get your point. However, given that Dad have been paying 1% advisors, how well informed could he be? In my experience, relationship risks only arise when money is lost. CDs avoid that, and would avoid the vast majority of relationship risk. I supposed the Son's preferred bank could provide bad customer service and Dad would blame son, but that seems unlikely and far less severe than a 30/70 portfolio that drops 10% year over year. "Sorry Dad the conservative portfolio I chose lost $80k last year."
Dad could just as well say "Why is Uncle Jim's portfolio gaining 30% and those CD's you put me in are not even beating inflation?" If he is really concerned about Dad's reaction, he should limit his involvement to "I will be happy to review any decisions you make".

In any case, my point was that the dollar amount shouldn't have any effect on his confidence level. The relationship question is a whole different can of worms.

EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 10:08 am

aristotelian wrote:
EHEngineer wrote: I get your point. However, given that Dad have been paying 1% advisors, how well informed could he be? In my experience, relationship risks only arise when money is lost. CDs avoid that, and would avoid the vast majority of relationship risk. I supposed the Son's preferred bank could provide bad customer service and Dad would blame son, but that seems unlikely and far less severe than a 30/70 portfolio that drops 10% year over year. "Sorry Dad the conservative portfolio I chose lost $80k last year."
Dad could just as well say "Why is Uncle Jim's portfolio gaining 30% and those CD's you put me in are not even beating inflation?" If he is really concerned about Dad's reaction, he should limit his involvement to "I will be happy to review any decisions you make".
Possible, but unlikely especially if Dad and Son agree on CDs. Most people understand them, so expectations will be met and no surprises.
aristotelian wrote:In any case, my point was that the dollar amount shouldn't have any effect on his confidence level. The relationship question is a whole different can of worms.
"Shouldn't" and "doesn't" affect confidence are two different things.

Anyway, I understand your point, and I think you understand mine. I agree to disagree.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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House Blend
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Re: My dad needs my help.

Post by House Blend » Wed May 03, 2017 10:12 am

jakerm17 wrote:1. Leaving the money with the financial advisor group - they charge 1% fees and are pushing some annuities pretty hard.
2. Financial advisory services with Vanguard (appointment set for Monday so will see what they offer)
3. One of the robo-services (Betterment, Wealthfront, etc.)
4. Finding a fiduciary and seeing what kind of plan they would offer.

My father my nature is frugal and conservative.
As for me, I am in my early 30s, young professional, and am comfortable with my own investing in the tens of thousands but to have to make a decision that will affect hundreds of thousands and my father's financial future feels like jumping into the deep end.
Option 1 is a *really* bad idea.

I would pass on robo-advisors, unless Dad is a technophile.

Talking to Vanguard for advice is a good idea, but he shouldn't feel obligated to sign up for their PAS when all he really needs from them is a single balanced fund for the trad IRA [*]. Use it in the Roth as well for added simplicity.

One thing that may be hard to figure out is the appropriate level of equity risk. But given his income and expenses, this is mostly a question of psychology, not necessity. The obvious choices are VG Target Retirement Income (30% equity) or VG Life Strategy Conservative Growth (40%).

[*] One thing that you haven't touched on, and could eventually be a large complicating factor, is what is happening to his RMDs? They are much larger than his income needs--approx $36K this year, vs. the $300/mo gap between SS income and expenses.

One short term use for the RMDs would be to pay down or pay off the mortgage. But eventually he'll probably need to start building up a taxable investment account with the proceeds. For that, setting up an appropriately split asset allocation between trad IRA and taxable is the kind of thing that requires a bit more expertise, and *might* be worth paying Vanguard PAS for if you feel out of your depth. (How familiar are you with taxation of SS income and the tax treatment of various kinds of investment income?)

That said, for someone who appears to have a very large margin of safety to cover his needs, I don't have a problem with keeping things really simple, such as using RMDs to buy CDs in taxable, especially if it provides peace of mind. This might cause some Boglehead tax efficiency geeks to blow a gasket, but that's their problem.

livesoft
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Re: My dad needs my help.

Post by livesoft » Wed May 03, 2017 10:14 am

I have to agree with the suggestion to just take all the IRA + Roth IRA money and move it to Vanguard and put it in the Target Retirement Income Fund. Vanguard will be able to calculate the RMD each year, so he can transfer it to his checking account. It is simplicity itself. This is so obvious to me that I don't see why it isn't done in the next couple of hours.
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EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 10:18 am

livesoft wrote:I have to agree with the suggestion to just take all the IRA + Roth IRA money and move it to Vanguard and put it in the Target Retirement Income Fund. Vanguard will be able to calculate the RMD each year, so he can transfer it to his checking account. It is simplicity itself. This is so obvious to me that I don't see why it isn't done in the next couple of hours.
Livesoft, you are quite rational, so given the sub-1% withdrawal rate and the available spectrum of risk, why is it obvious to you that risk assets should be recommended at all? Especially given the Dad's mental state and Son's discomfort?

As Bernstein says: when you've won the game, stop playing.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

dabblingeconomist
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Re: My dad needs my help.

Post by dabblingeconomist » Wed May 03, 2017 10:25 am

livesoft wrote:I have to agree with the suggestion to just take all the IRA + Roth IRA money and move it to Vanguard and put it in the Target Retirement Income Fund. Vanguard will be able to calculate the RMD each year, so he can transfer it to his checking account. It is simplicity itself. This is so obvious to me that I don't see why it isn't done in the next couple of hours.
I agree. This is the cheapest, simplest, and best option.

livesoft
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Re: My dad needs my help.

Post by livesoft » Wed May 03, 2017 10:29 am

EHEngineer wrote:As Bernstein says: when you've won the game, stop playing.
Target Retirement Income is used when one has stopped playing. Unlike CDs, one can withdraw the money at any time for a new car, a new roof, to pay off the mortgage, a new girlfriend, ,,,, whatever. Also no renewing hassles with Target Retirement Income fund.

There are also benefits to automatic monthly withdrawals that can be set up. I don't think you can do that with CDs. Plus the 1099-Rs should be easy to figure out and downloadable into tax software. One will not need to try to get CDs spread around to get FDIC insurance without issues. I think CDs are a bad idea.
Last edited by livesoft on Wed May 03, 2017 10:39 am, edited 1 time in total.
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itstoomuch
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Re: My dad needs my help.

Post by itstoomuch » Wed May 03, 2017 10:36 am

+1 @EHEngineer
Just because there is a pile of cash doesn't mean that one needs to invest it into something. From the scant information, deducing that no real harm is being done by doing nothing, now and into the future.
We have pile of cash (2017 IPS) and expect to lose 1-2% from inflation. Our ca$h is purely Discretionary. I'm a bit paranoid at the moment and just more risk adverse to a potential loss in a "correction". So to me & wife, a sure loss due to inflation is a lot better than a possible loss to investing :greedy .
My investing style is a bit different than our 32yo son.
see notes below.
YFather'sMMV compared to YMMV :mrgreen:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 10:51 am

livesoft wrote:
EHEngineer wrote:As Bernstein says: when you've won the game, stop playing.
Target Retirement Income is used when one has stopped playing. Unlike CDs, one can withdraw the money at any time for a new car, a new roof, to pay off the mortgage, a new girlfriend, ,,,, whatever. Also no renewing hassles with Target Retirement Income fund.

There are also benefits to automatic monthly withdrawals that can be set up. I don't think you can do that with CDs. Plus the 1099-Rs should be easy to figure out and downloadable into tax software. One will not need to try to get CDs spread around to get FDIC insurance without issues. I think CDs are a bad idea.
Ok, liquidity is a difference. But OP's dad has a bank account with cash. That could be sized a little longer, maybe 12 months spending, not 4-6. 1099R convenience is negligible. Presumably OP's dad already deals with that. Spreading CDs to 4 banks will add some setup effort. At one instituition OP could create a $25k CD that would be the Go-To cd for early withdrawal when in need of a new car, new roof, etc. Not too hard.

All rational reasons, thank you. I still think CDs are better.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

livesoft
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Re: My dad needs my help.

Post by livesoft » Wed May 03, 2017 10:57 am

You want more reasons for not using CDs? Here is an article about "Cash Cushion:" https://earlyretirementnow.com/2017/03/ ... h-cushion/
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EHEngineer
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Re: My dad needs my help.

Post by EHEngineer » Wed May 03, 2017 11:00 am

livesoft wrote:You want more reasons for not using CDs? Here is an article about "Cash Cushion:" https://earlyretirementnow.com/2017/03/ ... h-cushion/
Irrelevant. OP's withdrawal rate is less than 1%.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

livesoft
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Re: My dad needs my help.

Post by livesoft » Wed May 03, 2017 11:05 am

Perhaps that's all the more reason to avoid CDs. And who knows? Maybe Dad will start to spend more going forward?
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2015
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Re: My dad needs my help.

Post by 2015 » Wed May 03, 2017 11:14 am

livesoft wrote:
EHEngineer wrote:As Bernstein says: when you've won the game, stop playing.
Target Retirement Income is used when one has stopped playing. Unlike CDs, one can withdraw the money at any time for a new car, a new roof, to pay off the mortgage, a new girlfriend, ,,,, whatever. Also no renewing hassles with Target Retirement Income fund.

There are also benefits to automatic monthly withdrawals that can be set up. I don't think you can do that with CDs. Plus the 1099-Rs should be easy to figure out and downloadable into tax software. One will not need to try to get CDs spread around to get FDIC insurance without issues. I think CDs are a bad idea.
+1
Why add the complexity of CD's for someone who has historically had an adviser oversee their investing choices? I do understand these things and am purposely only using VBIRX for short-term needs as I'm too lazy to chase CD yields, maturities, etc. CD's are the antithesis of simplicity for anyone at age 74 (the age of OP's father), and are definitely a bad idea for anyone unaccustomed to juggling them for income needs from a portfolio.

Lynette
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Re: My dad needs my help.

Post by Lynette » Wed May 03, 2017 11:19 am

jakerm17 wrote:I'm fairly new to the community (about 2 years). I am writing to ask for advice on my father's situation.

He is 74 years old, retired, and recently divorced .
The details:
-He has 850 K in assets (825 in an IRA, 25 in a ROTH). The money is all currently un-invested and sitting with a small financial advisory group.
-10K in checking account
-Total monthly expenses are approx. 2500/mo. (This includes a 1200/mo. mortgage)
Beyond the mortgage, he has no debt.
I know you mention that your father is frugal but I find it difficult to believe that he can live on 1300/month - 2500 - 1200 as above. I strongly advise that you recalculate this.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 11:28 am

knpstr wrote:Best option would be to invest with Vanguard under their guidance.

If you (or your dad) are uncomfortable with this option of essentially "doing it yourself" and are more comfortable with help, the next best option would to stay with a local financial adviser, despite the high costs. It looks like this is what he has done his whole life and despite the high costs he managed to position himself well in retirement.

The good news is that SS covers ~88% of his expenses.
His $850,000 will fund his $3,600 yearly shortfall for 236 years. So he should be good to go until he is 310 years old


Lol. Well my dad is the youngest of 5 brothers, all still living in good health and the oldest is already over 100 so your numbers might not be too far off.
Thanks for your post. I agree about Vanguard. I will see what they say and let everyone know.

DTSC
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Re: My dad needs my help.

Post by DTSC » Wed May 03, 2017 11:30 am

How about if you just leave things as they are for another 6-12 months, until his state of mind improves?

Whatever you decide to do will still need his final approval, I suspect.

Many here and elsewhere caution against making big decisions soon after a major life changing event. A divorce certainly qualifies.

Was the divorce something that was brewing for a while, or something more acute? Speaking generally as a doctor, if an elderly person has an abrupt change in mood or personality, one has to worry about depression, dementia, stroke, or cancer (brain tumors). Obviously these would change how you manage the money too.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 11:41 am

Lynette wrote:
jakerm17 wrote:I'm fairly new to the community (about 2 years). I am writing to ask for advice on my father's situation.

He is 74 years old, retired, and recently divorced .
The details:
-He has 850 K in assets (825 in an IRA, 25 in a ROTH). The money is all currently un-invested and sitting with a small financial advisory group.
-10K in checking account
-Total monthly expenses are approx. 2500/mo. (This includes a 1200/mo. mortgage)
Beyond the mortgage, he has no debt.
I know you mention that your father is frugal but I find it difficult to believe that he can live on 1300/month - 2500 - 1200 as above. I strongly advise that you recalculate this.

I did a monthly budget breakdown with him and while he doesn't keep strict track of his expenses these were his best estimates and I don't think they're too far off. In the near future I'm going to do an exact breakdown looking at his credit cards and bank statements.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 11:50 am

DTSC wrote:How about if you just leave things as they are for another 6-12 months, until his state of mind improves?

Whatever you decide to do will still need his final approval, I suspect.

Many here and elsewhere caution against making big decisions soon after a major life changing event. A divorce certainly qualifies.

Was the divorce something that was brewing for a while, or something more acute? Speaking generally as a doctor, if an elderly person has an abrupt change in mood or personality, one has to worry about depression, dementia, stroke, or cancer (brain tumors). Obviously these would change how you manage the money too.

Funny you should ask. My dad is a former doctor (ortho surgeon). Truth be told, finance has never been his strong suit and during the marriage, my mother made all the financial decisions. I think knowing that I'm there looking out for his best interest is taking some of the weight off him. I just want to make sure I make a well thought out and educated choice.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 11:54 am

mouses wrote:
Blueskies123 wrote:Please do not answer this question but why would someone get divorced at 74?
Clearly the spouse left. The OP's Dad had no choice.

Correct

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BL
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Re: My dad needs my help.

Post by BL » Wed May 03, 2017 12:12 pm

I think #2 is best. PAS would have a reliable advisor(s) to go to with questions.
#1 is too costly, ~25%+ of RMD. Could get expensive advice like annuities or life insurance which pay advisor very well but are ill-advised.
#3 is tech-y but might be considered for a taxable account (I wouldn't),
#4 is hard to find a good + trustworthy individual although there must be a few.
#5 would be to put everything in a balance fund as mentioned here. You might bear more responsibility than #2, but it would be a decent simple set-up. Who would he go to if you were not there?

https://www.immediateannuities.com
could give you an estimate of monthly income from money placed in a SPIA (not invested): for example, 50k for male age 74 in state A would give $362/month.
Putting lots more in would be some income protection from greedy companions or other fraud or from mental decline or bad judgement. A PAS advisor just might help there as well.

Check on his spending; it may be different than he says. One year of checkbook spending might show it if all income and expenses run through it as either cash or checks. If recently divorced that could be difficult to estimate easily.

Social Security may be partially taxed with other income (RMD). Run a tax program or estimator to find out with various incomes. If other taxable income + 1/2 of SS is over 25k, it starts to be taxed.

cjcerny
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Re: My dad needs my help.

Post by cjcerny » Wed May 03, 2017 12:20 pm

Move everything to Vanguard. Put 40% in Total Stock Market Index fund. Put 60% in Total Bond Market Index fund. Or, put 100% of it in Vanguard's Wellesley fund. Withdraw no more than 4% a year from the total portfolio, including dividends.That's it. No adviser of any kind needed. It really is just that simple.

If he believes his portfolio is still too volatile, lower the stock percentage and raise the bond percentage until he is happy, but don't ever eliminate stocks entirely from it.

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Re: My dad needs my help.

Post by kd2008 » Wed May 03, 2017 1:08 pm

I strongly recommend Vanguard PAS in your situation. You do not have to full 850K under their service. You will get the same service even if you just have 50K (the minimum) and the rest you self-manage for your dad per the plan they advise with funds invested at Vanguard. This will help reduce the overall cost further.

When you have the consultation with Vanguard PAS, be sure to ask of this option. They may not tell you about it upfront.

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BL
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Re: My dad needs my help.

Post by BL » Wed May 03, 2017 1:13 pm

DTSC wrote:How about if you just leave things as they are for another 6-12 months, until his state of mind improves?

Whatever you decide to do will still need his final approval, I suspect.

Many here and elsewhere caution against making big decisions soon after a major life changing event. A divorce certainly qualifies.

Was the divorce something that was brewing for a while, or something more acute? Speaking generally as a doctor, if an elderly person has an abrupt change in mood or personality, one has to worry about depression, dementia, stroke, or cancer (brain tumors). Obviously these would change how you manage the money too.

To leave things alone for a while might be the most important advice of all. It will add to his stress which sounds quite severe already. Do what has to be done now and just research or consider what should be done after 6-12 months have passed.

Jimmie
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Re: My dad needs my help.

Post by Jimmie » Wed May 03, 2017 1:22 pm

jakerm17 wrote:
mouses wrote:
Blueskies123 wrote:Please do not answer this question but why would someone get divorced at 74?
Clearly the spouse left. The OP's Dad had no choice.

Correct
The OP's father is in the financial position as described.

The financial advice shouldn't be any different whether the OP's father was left alone via death or divorce, assuming the deceased spouse's finances had no impact. The advice would also apply to any single person in the same financial situation even if they chose never to marry.

Lynette
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Re: My dad needs my help.

Post by Lynette » Wed May 03, 2017 2:16 pm

I would also have a close look at his social security statement as well as his last 1040. Is he having taxes and medicare payments with held from his social security check? As others have mentioned also look at RMDs. I am 73 and have just retired. I have no mortgage and live in a Medium Cost of living area. I have to pay IRMAA Medicare taxes as I have pensions. But my medical premiums and Medigap alone are about $600 a month. Then there is property tax, utilities, car and home insurance, house and garden maintenance and not to mention food. Without looking at my budget, I would guess my basic necessities are close to $2500 per month.

Best wishes to your family.

Lynette

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Re: My dad needs my help.

Post by spencer99 » Wed May 03, 2017 2:20 pm

House Blend wrote:
[*] One thing that you haven't touched on, and could eventually be a large complicating factor, is what is happening to his RMDs? They are much larger than his income needs--approx $36K this year, vs. the $300/mo gap between SS income and expenses.
OP,

You haven't answered House Blend's question. This is important.

Clarification: ?? Are the portfolio numbers you give post-divorce settlement?


Good luck,

S

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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 2:28 pm

kd2008 wrote:I strongly recommend Vanguard PAS in your situation. You do not have to full 850K under their service. You will get the same service even if you just have 50K (the minimum) and the rest you self-manage for your dad per the plan they advise with funds invested at Vanguard. This will help reduce the overall cost further.

When you have the consultation with Vanguard PAS, be sure to ask of this option. They may not tell you about it upfront.


'This option' in terms of self-managing a portion of the funds and having Vanguard PAS do the rest?

I will let everyone know what Vanguard PAS suggests once the meeting occurs. It is set for Monday.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Wed May 03, 2017 2:34 pm

spencer99 wrote:
House Blend wrote:
[*] One thing that you haven't touched on, and could eventually be a large complicating factor, is what is happening to his RMDs? They are much larger than his income needs--approx $36K this year, vs. the $300/mo gap between SS income and expenses.
OP,

You haven't answered House Blend's question. This is important.

Clarification: ?? Are the portfolio numbers you give post-divorce settlement?


Good luck,

S

I do not know what is happening with his RMDs. I will contact my father and the financial advisor where the money currently is to look into this.

Yes, the 850 K is post-settlement.

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Re: My dad needs my help.

Post by LadyGeek » Wed May 03, 2017 3:49 pm

In reference to some earlier comments, I removed a few off-topic posts regarding a relationship issue. Please stay focused on the financial aspects.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: My dad needs my help.

Post by MarvinK » Wed May 03, 2017 10:36 pm

I hope you post again on Monday evening after speaking with Vanguard.
That said, it seems like PAS is an ideal approach for this situation.
This is your dad's life savings (I assume).
You may learn about different funds/approaches for retirement in seeing how the advisor works this year.
You always have the option to move the account back to a DIY, either with Vanguard or another brokerage.

The Bucket Approach to Retirement is a helpful (visual) and practical framework
Your dad will need some liquidity, some short term and some longer term investment practices.
http://news.morningstar.com/articlenet/ ... ?id=714223

Saving$
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Re: My dad needs my help.

Post by Saving$ » Wed May 03, 2017 11:48 pm

I'm a bit surprised paying off the mortgage has not gotten more traction in the responses.
I would recommend:
1. Pay off the mortgage. This will reduce his monthly cash outflow by $1200, so instead of having to withdraw to cover the shortfall, he will have extra money left over from his SS. Hopefully this will make him more inclined to spend some of it.

2. The man has $850k uninvested, from which a brokerage is siphoning off 1% AUM annually. At least paying off the mortgage will lower that to ? $650k? or more given that the mortgage is only $1200 (most of which is probably taxes & insurance). Move the remaining money to Vanguard. The above suggestions for what to do with it once there are good.

3. Some have questioned whether he only spends $2500/month - I do not find this difficult to imagine at all. If his RMD's pay his income taxes, and he is not getting out there and doing anything, there is not much on which to spend any money. Encourage him to use the extra cash flow resulting from item 1 to get more involved in something to divert some of the "Mental occupation" on the divorce to other things - use some money to join a gym, take some adult ed, something to stimulate his mind and get social. Isolation is one of the worst issues for seniors, and sometimes it is just how you look at the available resources, so changing the monthly cash flow from negative to positive could help.

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Thu May 04, 2017 1:03 am

MarvinK wrote:I hope you post again on Monday evening after speaking with Vanguard.
That said, it seems like PAS is an ideal approach for this situation.
This is your dad's life savings (I assume).
You may learn about different funds/approaches for retirement in seeing how the advisor works this year.
You always have the option to move the account back to a DIY, either with Vanguard or another brokerage.

The Bucket Approach to Retirement is a helpful (visual) and practical framework
Your dad will need some liquidity, some short term and some longer term investment practices.
http://news.morningstar.com/articlenet/ ... ?id=714223

Yes, these responses have been very helpful and it's great to hear everyone's ideas. I will make sure to do a follow-up post after talking with Vanguard.

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RMDs

Post by celia » Thu May 04, 2017 1:12 am

Being as young as you are, you likely haven't yet considered what Required Minimum Distributions (RMDs) are and the tax consequences that your dad faces. Here is a page that describes what they are:
https://en.wikipedia.org/wiki/IRA_Requi ... tributions

and a recent thread, where I turn the conversation towards RMDs:
viewtopic.php?f=1&t=217159

After you feel comfortable with whatever you decide to change, you should then look into what his tax bracket is and what it will be in 10 years after his RMDs grow and the account value continues to grow. If his taxes look like they will be jumping significantly, you may want to consider doing Roth conversions now, up to the top of his current tax bracket. But you have to take the RMD each year before you do Roth conversions.

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BL
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Re: My dad needs my help.

Post by BL » Thu May 04, 2017 1:31 am

Saving$ wrote:I'm a bit surprised paying off the mortgage has not gotten more traction in the responses.
I would recommend:
1. Pay off the mortgage. This will reduce his monthly cash outflow by $1200, so instead of having to withdraw to cover the shortfall, he will have extra money left over from his SS. Hopefully this will make him more inclined to spend some of it.

2. The man has $850k uninvested, from which a brokerage is siphoning off 1% AUM annually. At least paying off the mortgage will lower that to ? $650k? or more given that the mortgage is only $1200 (most of which is probably taxes & insurance). Move the remaining money to Vanguard. The above suggestions for what to do with it once there are good.

3. Some have questioned whether he only spends $2500/month - I do not find this difficult to imagine at all. If his RMD's pay his income taxes, and he is not getting out there and doing anything, there is not much on which to spend any money. Encourage him to use the extra cash flow resulting from item 1 to get more involved in something to divert some of the "Mental occupation" on the divorce to other things - use some money to join a gym, take some adult ed, something to stimulate his mind and get social. Isolation is one of the worst issues for seniors, and sometimes it is just how you look at the available resources, so changing the monthly cash flow from negative to positive could help.
Good points!
Helping your dad find hobbies or activities could be very helpful.

Might be helpful to know how much is needed to pay off mortgage. A large increase may have unexpected tax consequences so it would be a good idea to play "what if" games on a tax program or at least a tax estimator and also be aware of various things that can change with higher AGI: SS taxed up to 85% of total, Medicare rates go up, AMT, etc.
Medicare:
If your yearly income in 2015 (for what you pay in 2017) was You pay each month (in 2017)
File individual tax return File joint tax return File married & separate tax return
$85,000 or less ------ $170,000 or less ----- $85,000 or less
-------- $134
above $85,000 up to $107,000 ------- above $170,000 up to $214,000 ---- Not applicable
---------$187.50
above $107,000 up to $160,000 -----above $214,000 up to $320,000 ---- Not applicable
--------$267.90
above $160,000 up to $214,000 ----- above $320,000 up to $428,000 ----above $85,000 and up to $129,000
--------$348.30
above $214,000 -----above $428,000 ------ above $129,000
--------$428.60
Compare spreading out over a number of years vs. paying it all off in one year or two.

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Re: My dad needs my help.

Post by kd2008 » Wed May 10, 2017 7:34 am

OP, how did it go with PAS?

jakerm17
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Re: My dad needs my help.

Post by jakerm17 » Sun May 14, 2017 3:33 pm

kd2008 wrote:OP, how did it go with PAS?

Sorry for the delay. We had the phone meeting with PAS and then had a couple more days before we got the proposal. Here is the portfolio outline below:

% of Portfolio
35% - Vanguard Total Stock Market Index (admiral shares)
15% - Vanguard Total International Stock Market Index (admiral shares)
35% - Vanguard Total Bond Market Index (admiral shares)
15% - Vanguard Total International Bond Market Index (admiral shares)

Yes, it is a straightforward approach and one I could handle myself. If we move forward with it I would favor it for not having to handle re-balancing and also for a relief of some of the psychological burden. I think we may do PAS for a year or two until some other non-financial issues settle down and then I would be more available to take the helm.

jakerm17
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Re: RMDs

Post by jakerm17 » Sun May 14, 2017 3:37 pm

celia wrote:Being as young as you are, you likely haven't yet considered what Required Minimum Distributions (RMDs) are and the tax consequences that your dad faces. Here is a page that describes what they are:
https://en.wikipedia.org/wiki/IRA_Requi ... tributions

and a recent thread, where I turn the conversation towards RMDs:
viewtopic.php?f=1&t=217159

After you feel comfortable with whatever you decide to change, you should then look into what his tax bracket is and what it will be in 10 years after his RMDs grow and the account value continues to grow. If his taxes look like they will be jumping significantly, you may want to consider doing Roth conversions now, up to the top of his current tax bracket. But you have to take the RMD each year before you do Roth conversions.

Thank you for raising this point. I did bring this up with PAS and they bluntly (although in a friendly way) said that they don't go this far in depth as part of their services (and one of their reasons their fees are so low). So, I am going talk to my father's accountant to get an idea if a Roth conversion would make sense.

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Re: My dad needs my help.

Post by BanditKing » Sun May 14, 2017 11:24 pm

Even going with the 4 funds recommended seems overly complex in this situation and possibly too aggressive for you. It would also require re-balancing occasionally.

Honestly, if it were me, I'd put it all into Wellseley (VWIAX) which will give you a 40/60 split and basically take care of itself. It's a very well-respected fund with a low management fee. The RMDs you need to take can either be put into Wellesley in Taxable, or managed in Total Stock and Total Bond in a similar split (I'd put it all in Wellesley, myself, even if it isn't quite as tax-efficient - we're not talking a huge amount of distributions here).

RMDs could also be steered post-tax to the mortgage.

Keep it dirt simple.
Last edited by BanditKing on Mon May 15, 2017 12:11 am, edited 1 time in total.

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