Revamping Mom's Portfolio

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Topic Author
RicoRico
Posts: 4
Joined: Tue Aug 01, 2017 3:56 pm

Revamping Mom's Portfolio

Post by RicoRico » Tue Aug 01, 2017 4:11 pm

First time poster so please be gracious

My parents recently split and my Mom has significant proceeds from the divorce in the 1.5-2M range. She is currently 63 and does not plan on working for the remainder of her life. After meeting with a financial advisor, (not interested in hiring one) I think I could set her up with a Vanguard account that consists of annuities to pay her expenses and invest the rest in vanguard funds with a low ER.

Background:

State of Residence: FL
Age: 63
Unemployed - no income
No dependents
Total portfolio value is approximately $1.5-2M - all in a Vanguard account making nothing right now
Desired Asset allocation: 70% stocks / 30% bonds (looking to be heavier in stocks and taper off as she ages)
Desired International allocation: not sure
Emergency funds: Probably would be smart to set aside some emergency funds - $50k?

Debt:
No mortgage or credit card debt
Tax Filing Status: Single

Current assets are nearly all in cash in Vanguard account

Contributions - none since no income

Available funds - anything in Vanguard or with low ER; wide open to consider other options

Questions:
1. Is this plan reasonable? Basically cover her expenses with annuities, set aside some cash for emergencies, put the rest in Vanguard accounts. She has considered buying a house but has no plans to move forward. Open to suggestions and critiques.

2. Anyone heard of a type of account that prevents significant others/new spouses from having access to the funds? As her son I'm naturally concerned about someone coming along and taking advantage of her wealth. Could I set up an account wherein any large transactions require my approval, without myself having access to the funds? Any additional ideas are welcome!

3. What tax considerations am I forgetting?

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Watty
Posts: 14873
Joined: Wed Oct 10, 2007 3:55 pm

Re: Revamping Mom's Portfolio

Post by Watty » Tue Aug 01, 2017 8:47 pm

Two important considerations are what her income needs will be and what her tax bracket is likely to be including state taxes.
RicoRico wrote:After meeting with a financial advisor, (not interested in hiring one)
Vanguard will provide financial planning for 0.30% and she could use them for a year or two then stop after she has her finances in order. You might want to keep an open mind on using Vanguard

https://investor.vanguard.com/financial ... es?lang=en
RicoRico wrote:1. Is this plan reasonable? Basically cover her expenses with annuities, set aside some cash for emergencies, put the rest in Vanguard accounts. She has considered buying a house but has no plans to move forward. Open to suggestions and critiques.
A single premium immediate annuity (SPIA) is about the only type of annunity that ever makes sense. Virtually all other annuities are very poor choices because of the high fees and poor terms. If you are talking about a SPIA annuity then there can be a role for them in retirement planning but inflation can be a big problem with them. If one is appropriate for her then there is also the question of when to buy them and when she is in her 70's might be a better time.

Between Social Security and the dividends on her investments she might not really need a lot of other income.

Delaying when to start Social Security to get a larger benefit later is in effect buying an annuity with better terms than you could get with a SPIA that you buy from an insurance company.
RicoRico wrote:2. Anyone heard of a type of account that prevents significant others/new spouses from having access to the funds? As her son I'm naturally concerned about someone coming along and taking advantage of her wealth. Could I set up an account wherein any large transactions require my approval, without myself having access to the funds? Any additional ideas are welcome!
The same concern could be made about a son that is trying to take control of a parents money.

She could have a lawyer set up a trust to help protect the funds if she remarries some day but unless she is mentally incompetent putting restrictions on how she spends her money is questionable.
RicoRico wrote:3. What tax considerations am I forgetting?
The way Social Security is taxed is important. If any money is in taxable IRAs then doing Roth conversions before she starts Social Security could help reduce taxes later.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

https://www.bogleheads.org/wiki/Social_ ... calculator

jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Revamping Mom's Portfolio

Post by jbolden1517 » Tue Aug 01, 2017 9:30 pm

Agree with Watty. She's too young for an annuity. What makes an annuity incredibly useful is the death benefit. She gets to diversify away the income risk of living longer than expected. Right now she expects to live a long time.

So it is a normal portfolio for 15-20 years and then you decide. At age 63 you are talking about over a 30 year inflation adjusted draw. The big question, in many ways the only big question, is what does she want to live on inflation adjusted. With say $50k and $2m that's a 2.5% draw and she has plenty. Almost any portfolio works. With $100k and $1.5m that's a 6.7% draw and things get scary. Remember she gets social security so factor in the draw might drop. But early years are the most important and in those she isn't collecting.

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BL
Posts: 8549
Joined: Sun Mar 01, 2009 2:28 pm

Re: Revamping Mom's Portfolio

Post by BL » Tue Aug 01, 2017 9:53 pm

If married 10 years she may have a choice of drawing SS on ex-spouse (if he is drawing SS) at FRA or on her own earnings if greater than 1/2 ex's, or sequentially, his, then hers at age 70, and eventually on her or survivor account depending on which is greater.

SPIA at age 70 or greater might be a good choice for basic requirements. Or she could buy some every 5 years or so to account for inflation.

Having a year or two of cash in CDs or other cash equivalent, and using life Strategy Conservative or Target date fund might be ok. Choosing V PAS is perhaps a good option as well if she is not used to investing and would like to talk to an experienced person who won't take advantage of her. She really needs to figure out her annual expenses.

Topic Author
RicoRico
Posts: 4
Joined: Tue Aug 01, 2017 3:56 pm

Re: Revamping Mom's Portfolio

Post by RicoRico » Fri Jan 11, 2019 11:06 am

Wanted to stop by and say thank you to those who responded!

We ended up connecting with a Vanguard asset manager to put her on the right path. Once she's allocated properly, we will likely stop the service with the potential of restarting it every 5 years for the next 25-30.

Thanks again!

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