Elderly Grandparent's investment allocation

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Zombies
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Elderly Grandparent's investment allocation

Postby Zombies » Sat Jul 15, 2017 6:50 pm

Hi everyone -- long time lurker, first time poster. My parents are visiting and the investment care for my grandmother came up, so I wanted to solicit input.

My 95-year old grandmother (a widower) is in good health, and lives in an Elder Care community. Her two sisters lived to 100 so we imagine she still has a few years of good health left.

The community required a $170k investment (paid off), and her monthly fees are $4,000/month, increasing by 2-5% each year. She receives $1,000/month from Social Security, and her other living expenses beyond the housing/food fees that are included are about $1,000 a month (meaning her SS nets out to cover her misc expenses).

She has $330,000 invested in a combination of ETFs (bonds/utilities/etc.), and she generates dividend income of $1500. Currently my father is selling some of the principal each month to cover the $2,500/month gap, which of course also reduces future dividends. The other outstanding expenses that occasionally happen probably equate to $5,000 a year, such as followup to medical expenses.

One of her sons is deceased, my father is well-off, and her other daughter is financially sound (although not wealthy).

My argument is my father should completely remove exposure to the market at this stage, as the marginal gain from investment increases provides zero utility to my grandmother (whose money it is) and essentially zero to her heirs, but a significant decrease in the value of her account could provide stress on her (and her heirs) if she reached a state where money was getting low. While unlikely (the amount she has remaining versus what she actually spends should be sufficient), my opinion is there is no reason to even take that small risk, and the only thing that should matter is securing her remaining years in comfort.

She has completely delegated this to my father and would have no opinion either way.

Any thoughts? If we should change her allocation, what is a good way to do this? Just bonds? Anything else?

One last thing to mention is she does have a safety net -- if she lives long enough without extravagant spending the facility will cover her monthly fees, but she would be disappointed in not being able to leave even a token to her heirs. Additionally, my father and I would of course cover all her needs if true disaster struck.

Sorry for the long details, and appreciate the thoughts!

mhalley
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Re: Elderly Grandparent's investment allocation

Postby mhalley » Sat Jul 15, 2017 7:22 pm

I think the standard elderly portfolio is about 30% stocks to still allow for some growth.
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Zombies
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Re: Elderly Grandparent's investment allocation

Postby Zombies » Sat Jul 15, 2017 7:26 pm

But in this case where she's already 95 and she has more than enough to cover her expenses -- combined with no real need for inheritance or a gifting legacy -- what's the point of that?

Uniballer
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Re: Elderly Grandparent's investment allocation

Postby Uniballer » Sat Jul 15, 2017 7:36 pm

You didn't say what she currently has for AA. So it is hard to say if anything should change.

Zombies wrote:But in this case where she's already 95 and she has more than enough to cover her expenses -- combined with no real need for inheritance or a gifting legacy -- what's the point of that?
OTOH it sounds like there is way more than enough, so what is the point of changing it?

mhalley
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Re: Elderly Grandparent's investment allocation

Postby mhalley » Sat Jul 15, 2017 7:58 pm

Certainly you could argue for just putting it in a cd ladder/high yield savings account. You did mention one daughter that is sound but not well off, plus the grandparent does want to leave a legacy. That is why I suggested the 30% stocks, to have some opportunity for growth. You could certainly go down to 10-20, or zero. There is no one right answer.

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Taylor Larimore
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Re: Elderly Grandparent's investment allocation

Postby Taylor Larimore » Sat Jul 15, 2017 8:28 pm

Zombies:

I am 93. Money that I cannot afford to lose is in bonds and cash. The rest is in stock mutual funds.

I sleep like a baby.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Zombies
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Re: Elderly Grandparent's investment allocation

Postby Zombies » Sat Jul 15, 2017 9:53 pm

Fair enough. I like the "money I can't afford to lose" framing -- the 30/70 suggestion likely covers that, but I will run the numbers on projected spending and current AA and figure out if adjustments are necessary. Much appreciated!

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BL
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Re: Elderly Grandparent's investment allocation

Postby BL » Sat Jul 15, 2017 10:12 pm

Will costs increase when/if nursing home type expenses occur? That could affect needed income.

Nate79
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Re: Elderly Grandparent's investment allocation

Postby Nate79 » Sun Jul 16, 2017 12:28 am

30/70 sounds like a reasonable asset allocation. She has just enough current assets to cover her expenses to age 100 and growth should cover inflation.

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celia
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Re: Elderly Grandparent's investment allocation

Postby celia » Sun Jul 16, 2017 1:04 am

Sounds like she has enough to cover 6 more years of monthly fees then she will live there for "free"? I have heard that this is common. They can't kick her out just because she lasted longer than her money.

As far as leaving an inheritance, it doesn't have to be financial. I suppose she has some kind of "treasures" from photos, recipes, wall hangings, or things that people made for her or she herself made.

If she was my mother or grandmother, I'd go visit her tomorrow with a digital tape recorder and start asking her about how she grew up, her parents and DH and other relatives, and whatever is important to her. Only one person should be talking at a time while you capture these priceless memories. (The recording can cover several sessions so don't wear her out in one sitting.)

Zombies
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Re: Elderly Grandparent's investment allocation

Postby Zombies » Sun Jul 16, 2017 2:42 am

Yes -- I don't know the legalese of the deal, but supposedly as long as the money runs out under reasonable circumstances they will cover the monthly fees in perpetuity until death. I think they claw back some of the equity in the unit and they surely must have protections from her buying a Ferrari somehow, but she should be fine even with a market downturn assuming the facility is of integrity.

Great idea re: memories Celia -- I unfortunately live 2500 miles away, but I'll pass on that idea to my family who is close. They do visit often.

Dandy
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Re: Elderly Grandparent's investment allocation

Postby Dandy » Sun Jul 16, 2017 7:28 am

I would have little if any of her money in equities or even bond funds. I would favor a combination of high yield savings and CDs. Ally offers a no penalty CD I believe it is 1.5% and Savings above 1%. You can check depositaccounts.com for banks/credit unions offerings and promotions. I would be concerned that a major equity market plunge would damages her finances and you would end up withdrawing money from a much depleted asset base.

There are no perfect solutions.

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BL
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Re: Elderly Grandparent's investment allocation

Postby BL » Sun Jul 16, 2017 7:53 am

Dandy wrote:I would have little if any of her money in equities or even bond funds. I would favor a combination of high yield savings and CDs. Ally offers a no penalty CD I believe it is 1.5% and Savings above 1%. You can check depositaccounts.com for banks/credit unions offerings and promotions. I would be concerned that a major equity market plunge would damages her finances and you would end up withdrawing money from a much depleted asset base.

There are no perfect solutions.

+1
The general advice here is to keep expenses needed in up to 5 years in safe places such as CDs and high-yield savings (some can be in local bank for convenience). She doesn't have the time to wait for a recovery. At this point you are conserving assets; then she has the back-up of her guaranteed living arrangement. Sounds good to me.

pennywise
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Re: Elderly Grandparent's investment allocation

Postby pennywise » Sun Jul 16, 2017 8:16 am

Zombies wrote:Great idea re: memories Celia -- I unfortunately live 2500 miles away, but I'll pass on that idea to my family who is close. They do visit often.


A gentle comment-seems you are seeking opinions that have not been sought to manage a situation you have neither the responsibility nor authority to manage, about a relative who is living at a far distance and whose welfare seems to be managed quite successfully by other family members who are doing the best they can to take care of her as she nears the final years of a long life.

Which is to say I think you may find that you are likely to stir up some negative family dynamics between you and your parents about your grandmother's care to no good end. Failing evidence that they are handling her financial affairs in a predatory or incompetent fashion, which doesn't seem to be the case, you are running the risk of invoking resentment from your family about a distant (geographically and in terms of responsibility) relative inserting him/herself into care decisions that include financial care--and frankly, rightfully so.

If your parents have been and continue to handle the daily and long term myriad issues that go along with caretaking for an almost 100-year old person you may want to leave them alone rather than attempt to persuade them of the 'right' path to take based on what you would do or not do.

amateurnovice
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Re: Elderly Grandparent's investment allocation

Postby amateurnovice » Sun Jul 16, 2017 8:53 am

If she needs income or has quick liquidity needs, she may have to forego any real returns and put some in short term CDs. Maybe buy about $50k in muni bonds, but keep some in 6 to 12 month CDs. Online banks offer some decent returns that will far outdo anything at brick and mortar, which may be a problem for her since she's in control of it and may prefer to still walk into a bank rather than e-sign an application.

Edit: I went through this with my grandfather not that long ago. In 2014, he got the idea to reinvest his IRA which was in short-term CDs paying almost 0%. Bought some corporate callable bonds but the FA knew his suitability was pure income/no risk. He was diagnosed with bone cancer about three months after that meeting (which I attended). The bonds were called but he netted about $800 from them, way more than he would've with the CDs. But as soon as they were called, the FA put the money into three month CDs. I told the FA about the cancer in an email and he put all the assets back on the bank side (Regions/Cetera). He lived on plenty of military disability and SS but wanted to impress his girlfriend with his investment acumen. He was 90, died at 91 about 1 and 1/2 years after the initial diagnosis.

That late in life, income and safety is paramount. And elderly like that are stubborn. Maybe meet with the FA at her brick and mortar bank if they offer one and use him to sort it out.

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grabiner
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Re: Elderly Grandparent's investment allocation

Postby grabiner » Sun Jul 16, 2017 9:23 am

amateurnovice wrote:If she needs income or has quick liquidity needs, she may have to forego any real returns and put some in short term CDs. Maybe buy about $50k in muni bonds, but keep some in 6 to 12 month CDs.


She is in too low a tax bracket for munis to make sense; if she holds bonds rather than CDs, she should use taxable bonds such as Total Bond Market Index.
David Grabiner

cautious
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Re: Elderly Grandparent's investment allocation

Postby cautious » Sun Jul 16, 2017 6:26 pm

[quote="celia"]Sounds like she has enough to cover 6 more years of monthly fees then she will live there for "free"? I have heard that this is common. They can't kick her out just because she lasted longer than her money.

If sounds as if she's in a Continuing Care Retirement Community (CCRC). Under IRS Code 72-124, she cannot be asked to leave due to lack of funds. But this is only true for CCRC retirement communities. Yet some have gone into bankruptcy, residents lost their buy-in, and were forced to go elsewhere. In response, many states have passed legislation or a "Bill of Rights" to give residents some oversight of their facility. It would be helpful to have more details about her community and the State she resides in.

Zombies
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Re: Elderly Grandparent's investment allocation

Postby Zombies » Sun Jul 16, 2017 7:10 pm

pennywise wrote:A gentle comment-seems you are seeking opinions that have not been sought to manage a situation you have neither the responsibility nor authority to manage, about a relative who is living at a far distance and whose welfare seems to be managed quite successfully by other family members who are doing the best they can to take care of her as she nears the final years of a long life.

Which is to say I think you may find that you are likely to stir up some negative family dynamics between you and your parents about your grandmother's care to no good end. Failing evidence that they are handling her financial affairs in a predatory or incompetent fashion, which doesn't seem to be the case, you are running the risk of invoking resentment from your family about a distant (geographically and in terms of responsibility) relative inserting him/herself into care decisions that include financial care--and frankly, rightfully so.

If your parents have been and continue to handle the daily and long term myriad issues that go along with caretaking for an almost 100-year old person you may want to leave them alone rather than attempt to persuade them of the 'right' path to take based on what you would do or not do.


Understand how it may seem that way, but such is the nuances Lost on message board posts. I have a fantastic relationship with my parents and introduced them to the Boglehead Way -- the approach I suggested is heavily endorsed by my mother, and my father agreed asking the Forum is a great way to solicit opinions as he is open to it. We've gone many decades with a great relationship with open discussion about money, and this is nowhere near a danger zone.

Zombies
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Re: Elderly Grandparent's investment allocation

Postby Zombies » Sun Jul 16, 2017 7:13 pm

cautious wrote:If sounds as if she's in a Continuing Care Retirement Community (CCRC). Under IRS Code 72-124, she cannot be asked to leave due to lack of funds. But this is only true for CCRC retirement communities. Yet some have gone into bankruptcy, residents lost their buy-in, and were forced to go elsewhere. In response, many states have passed legislation or a "Bill of Rights" to give residents some oversight of their facility. It would be helpful to have more details about her community and the State she resides in.


Thanks -- I will do some research to see if that is what applies, it sounds correct. She's in an assisted living facility in Maryland. As a backstop (if the facility went bankrupt), my parents or I would further backstop her as necessary.


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