Another Help Mom (and me ) post

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Dottie57
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Another Help Mom (and me ) post

Post by Dottie57 » Sun Sep 10, 2017 6:43 pm

My mom is 85 and has an IRA (inherited from my dad late last year) of about 430k. About 230k is in a bank account paying .1%. The rest is in Individual bonds which all pay more than 4% with Some at 8%.

I'd like to at least explore somehing for the cash to pump up my mom income which is about 46k this year. An SPIA is a possibility.

I don't really understand how to determine how much cash is generated by dividends in a bond fund.

Let's pretend bond fund A is priced at $10.00 amd mom buys 10,000 shares for $100,000. Dividend for august i. .02213.
Is the amount generated $221.30? So if the dividend is the same each month the annual amount is $2655.60. Am I correct?

alex_686
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Re: Another Help Mom (and me ) post

Post by alex_686 » Sun Sep 10, 2017 6:48 pm

Your calculations are correct but that is not what you want to look for. Better to look at the SEC yield of the fund.

Bond payments can be lumpy, with them higher at quarter end. Dividend payments only included coupon payments, not premium income or capital gains. That can come in a larger lump in December. The yield will fluctuate as the bond market fluctuates, so the coupons will move around a bit.

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Watty
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Re: Another Help Mom (and me ) post

Post by Watty » Sun Sep 10, 2017 7:17 pm

Dottie57 wrote:
Sun Sep 10, 2017 6:43 pm
I'd like to at least explore somehing for the cash to pump up my mom income which is about 46k this year.
She can do better than .1% but reaching for higher yielding income has gotten a lot of people into trouble since there really are not any good safe options right now so she needs to be careful. Without taking a lot of risk she will have a hard time finding anything that pays 2% which is barely keeping up with inflation.

At 85 I would take a look at just putting the money into a 5 year ladder of CDs. For example for $200K she could just buy five $40K CD's that marture in 1,2,3,4, and five years. They would get different rates but as they matured they could be reinvested in a new five year CD. That way if inflation or rates increase she will be reinvesting the money at the new rates.

You can shop around for the best rates but here is what one credit union pays.
https://www.penfed.org/accounts/certificates-overview

At 85 there is no reason that she should try to just live off the interest. She could start slowing spending down her nest egg and if she have little risk of outliving her money.

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Sun Sep 10, 2017 7:19 pm

alex_686 wrote:
Sun Sep 10, 2017 6:48 pm
Your calculations are correct but that is not what you want to look for. Better to look at the SEC yield of the fund.

Bond payments can be lumpy, with them higher at quarter end. Dividend payments only included coupon payments, not premium income or capital gains. That can come in a larger lump in December. The yield will fluctuate as the bond market fluctuates, so the coupons will move around a bit.

With the sec yield, do I multiple the number of shares or the dollar value of the holding. So if sec yield is 2.4% then the amount is 100000 x 2.4%. Correct?

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Sun Sep 10, 2017 7:22 pm

Watty wrote:
Sun Sep 10, 2017 7:17 pm
Dottie57 wrote:
Sun Sep 10, 2017 6:43 pm
I'd like to at least explore somehing for the cash to pump up my mom income which is about 46k this year.
She can do better than .1% but reaching for higher yielding income has gotten a lot of people into trouble since there really are not any good safe options right now so she needs to be careful. Without taking a lot of risk she will have a hard time finding anything that pays 2% which is barely keeping up with inflation.

At 85 I would take a look at just putting the money into a 5 year ladder of CDs. For example for $200K she could just buy five $40K CD's that marture in 1,2,3,4, and five years. They would get different rates but as they matured they could be reinvested in a new five year CD. That way if inflation or rates increase she will be reinvesting the money at the new rates.

You can shop around for the best rates but here is what one credit union pays.
https://www.penfed.org/accounts/certificates-overview

At 85 there is no reason that she should try to just live off the interest. She could start slowing spending down her nest egg and if she have little risk of outliving her money.


My mom is just afraid of running out of money. Hence consideration of an SPIA and looking for better returns. Not looking for high risk. Just a bit more $.

alex_686
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Re: Another Help Mom (and me ) post

Post by alex_686 » Sun Sep 10, 2017 8:14 pm

Dottie57 wrote:
Sun Sep 10, 2017 7:19 pm
With the sec yield, do I multiple the number of shares or the dollar value of the holding. So if sec yield is 2.4% then the amount is 100000 x 2.4%. Correct?
By the dollar amount. FYI, distribution is past cash flow, SEC yield is estimated future income. They will not align. Future cash flow will be neither. Distribution yield will tell you sweet lies. The SEC Yield is a higher quality number but will only vaguely resemble the cash flows thrown off by dividends.

JW-Retired
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Re: Another Help Mom (and me ) post

Post by JW-Retired » Sun Sep 10, 2017 8:21 pm

Dottie57 wrote:
Sun Sep 10, 2017 7:22 pm
My mom is just afraid of running out of money. Hence consideration of an SPIA and looking for better returns. Not looking for high risk. Just a bit more $.
At age 85 a SPIA costing $200k would pay her $2211/month until death. Is that enough more dollars? Seems just what she needs.
https://www.immediateannuities.com/
JW
Retired at Last

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Sun Sep 10, 2017 8:22 pm

JW-Retired wrote:
Sun Sep 10, 2017 8:21 pm
Dottie57 wrote:
Sun Sep 10, 2017 7:22 pm
My mom is just afraid of running out of money. Hence consideration of an SPIA and looking for better returns. Not looking for high risk. Just a bit more $.
At age 85 a SPIA costing $200k would pay her $2211/month until death. Is that enough more dollars? Seems just what she needs.
https://www.immediateannuities.com/
JW
Yes it would be more than enough.

dbr
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Re: Another Help Mom (and me ) post

Post by dbr » Mon Sep 11, 2017 8:53 am

Where is the $46k coming from now? The savings at .1% gets a few hundred dollars. 4% of the other $200k amounts to about $8K. So she presumably already has about $38K from Social Security or somesuch. Her dividends at $8K on $430K amount to a withdrawal rate of about 2%. At her age she could just withdraw money from her savings and safely spend at about three times that rate or more. That would add 16K to her income.

All of that aside, I think the SPIA is a compelling option in this case. She can set aside less than half her assets and fix the income problem while retaining a reserve.

However, I would investigate the implications of this for paying assisted living or nursing home costs later.

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Mon Sep 11, 2017 9:00 am

dbr wrote:
Mon Sep 11, 2017 8:53 am
Where is the $46k coming from now? The savings at .1% gets a few hundred dollars. 4% of the other $200k amounts to about $8K. So she presumably already has about $38K from Social Security or somesuch. Her dividends at $8K on $430K amount to a withdrawal rate of about 2%. At her age she could just withdraw money from her savings and safely spend at about three times that rate or more. That would add 16K to her income.

All of that aside, I think the SPIA is a compelling option in this case. She can set aside less than half her assets and fix the income problem while retaining a reserve.

However, I would investigate the implications of this for paying assisted living or nursing home costs later.
Mom gets 16.5 k from SS
RMD is 30k
IRA contains some bonds totaling 173k. At rates between 4.5% and 8.5%. It generates about 11k.
The rest of money in IRA is in bank account Distribution from cash is about 19k.

Total income
SS 16.5k
IRA bonds 11k
IRA cash 19k

Her home is worth 250k. And can be sold for assisted living.



Total 46,5k

dbr
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Re: Another Help Mom (and me ) post

Post by dbr » Mon Sep 11, 2017 9:25 am

Dottie57 wrote:
Mon Sep 11, 2017 9:00 am
dbr wrote:
Mon Sep 11, 2017 8:53 am
Where is the $46k coming from now? The savings at .1% gets a few hundred dollars. 4% of the other $200k amounts to about $8K. So she presumably already has about $38K from Social Security or somesuch. Her dividends at $8K on $430K amount to a withdrawal rate of about 2%. At her age she could just withdraw money from her savings and safely spend at about three times that rate or more. That would add 16K to her income.

All of that aside, I think the SPIA is a compelling option in this case. She can set aside less than half her assets and fix the income problem while retaining a reserve.

However, I would investigate the implications of this for paying assisted living or nursing home costs later.
Mom gets 16.5 k from SS
RMD is 30k
IRA contains some bonds totaling 173k. At rates between 4.5% and 8.5%. It generates about 11k.
The rest of money in IRA is in bank account Distribution from cash is about 19k.

Total income
SS 16.5k
IRA bonds 11k
IRA cash 19k



Her home is worth 250k. And can be sold for assisted living.



Total 46,5k
OK So she is currently withdrawing $30K a year from a portfolio of $430K. At that rate her assets are certainly going to last another 15 years or more. She also has around four to five years of living costs in the house. (*see note below about RMD)

If she needs more income than she currently has, she can withdraw more money from her assets and take more risk that she will still be alive ten years or so from now and out of money plus another four years after selling the house. $40K a year would last twelve years or so.

If you wanted to increase that $30K a year from her portfolio to perhaps $40K a year and not have the risk of still being alive and running out of money then you could do that with an annuity costing around $300K and you would leave a contingency fund of $130,000 she would not have to spend unless needed.

*Note that you are making a mistake in calling her RMD income without also recognizing that it is a withdrawal which depletes her portfolio. The RMD schedule is designed by law to cause the retiree to spend down their assets through old age. From age 85 to age 90 that withdrawal rate is set to 8%-9% a year leaving the portfolio to last maybe ten to twelve years or so.

I suggested investigating assisted living costs to see how annuities and assets are treated when a person starts to run out of money in assisted living, not that this is likely here.

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Mon Sep 11, 2017 9:40 am

dbr wrote:
Mon Sep 11, 2017 9:25 am
Dottie57 wrote:
Mon Sep 11, 2017 9:00 am
dbr wrote:
Mon Sep 11, 2017 8:53 am
Where is the $46k coming from now? The savings at .1% gets a few hundred dollars. 4% of the other $200k amounts to about $8K. So she presumably already has about $38K from Social Security or somesuch. Her dividends at $8K on $430K amount to a withdrawal rate of about 2%. At her age she could just withdraw money from her savings and safely spend at about three times that rate or more. That would add 16K to her income.

All of that aside, I think the SPIA is a compelling option in this case. She can set aside less than half her assets and fix the income problem while retaining a reserve.

However, I would investigate the implications of this for paying assisted living or nursing home costs later.
Mom gets 16.5 k from SS
RMD is 30k
IRA contains some bonds totaling 173k. At rates between 4.5% and 8.5%. It generates about 11k.
The rest of money in IRA is in bank account Distribution from cash is about 19k.

Total income
SS 16.5k
IRA bonds 11k
IRA cash 19k



Her home is worth 250k. And can be sold for assisted living.



Total 46,5k
OK So she is currently withdrawing $30K a year from a portfolio of $430K. At that rate her assets are certainly going to last another 15 years or more. She also has around four to five years of living costs in the house. (*see note below about RMD)

If she needs more income than she currently has, she can withdraw more money from her assets and take more risk that she will still be alive ten years or so from now and out of money plus another four years after selling the house. $40K a year would last twelve years or so.

If you wanted to increase that $30K a year from her portfolio to perhaps $40K a year and not have the risk of still being alive and running out of money then you could do that with an annuity costing around $300K and you would leave a contingency fund of $130,000 she would not have to spend unless needed.

*Note that you are making a mistake in calling her RMD income without also recognizing that it is a withdrawal which depletes her portfolio. The RMD schedule is designed by law to cause the retiree to spend down their assets through old age. From age 85 to age 90 that withdrawal rate is set to 8%-9% a year leaving the portfolio to last maybe ten to twelve years or so.

I suggested investigating assisted living costs to see how annuities and assets are treated when a person starts to run out of money in assisted living, not that this is likely here.

I do understand the balance goes down with RMD withdrawl. Cash portion goes down. The bonds will gradually go down after they mature and become cash.

4 .years ago I found there was no upfront cost for assisted living. All institutions required you to pay on your own for at least two years. Only worry is using an annuity and asking for medicaid at some point.

dbr
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Re: Another Help Mom (and me ) post

Post by dbr » Mon Sep 11, 2017 9:48 am

Is this discussion helping answer your questions?

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Mon Sep 11, 2017 9:52 am

dbr wrote:
Mon Sep 11, 2017 9:48 am
Is this discussion helping answer your questions?

Yes. I really wanted someone to help me view mom's resources in a rational manner. I am very satisfied.

Thank you for your help!

dbr
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Re: Another Help Mom (and me ) post

Post by dbr » Mon Sep 11, 2017 10:19 am

Good.

I would add that the one tricky thing to plan for is some need to spend a lot more money annually if care needs become high. One should be careful about annuities as these do not leave funds for contingencies if too much is annuitized.

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Watty
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Re: Another Help Mom (and me ) post

Post by Watty » Mon Sep 11, 2017 10:53 am

Her owning the house which can be used for long term care really helps her already good financial situation. Using a paid off house to pay for LTC if it is ever needed is basically my plan too. Be sure that you have all the right paperwork that is needed to sell the house if you need to and she is not able to sign the needed paperwork then. In some states it may work better if you have a special power of attorney to sell the real estate.

You should also make sure that there is paperwork in place so that someone else could handle her finances if something happens and she outlives you.
Dottie57 wrote:
Mon Sep 11, 2017 9:52 am
I really wanted someone to help me view mom's resources in a rational manner.
There is a bit of a learning curve but you can also look at some of her numbers with various withdrawal rates to see how she would have done in the past with the Firecalc web site. It assumes a portfolio of stocks and bonds so you will need to change that if she wants to hold CD's or something like that.

https://www.firecalc.com/

Buying a single premium immediate annuity(SPIA) is a very valid choice to consider but you need to be sure that you are actually getting a good SPIA. There are a lots of salespeople that will try to real junky products that are also called annuities. A SPIA is the only type of annuity that is worth considering.

Since she is 85 she could realistically live for another 15 or more years and with a SPIA there is a risk that inflation could be a problem or the insurance company she buys the SPIA annuity from could have financial problems. I would be cautious about putting more than half of her investments into a SPIA just for diversification. If she does want to put a lot into a SPIA then she could buy a couple from different insurance companies so that she would not be impacted as badly if an insurance company runs into financial problems.
dbr wrote:
Mon Sep 11, 2017 9:25 am
IRA contains some bonds totaling 173k. At rates between 4.5% and 8.5%. It generates about 11k.
You need to find out the details of just what these bonds are.

Unless the are some sort of risky junk bonds they are likely older bonds that were sold with a high coupon rate when interest rates were higher that are selling for a premium today.

This would mean that $173K you mentioned could be either the current market value the bonds or the total of the face values that she will get when the bonds mature. If the $173K is the total of the face value then the market value would be higher and her financial situation would be even better.

If they are high yielding junk bonds then that could be a problem since they would be too risky for her.

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Mon Sep 11, 2017 11:10 am

Watty wrote:
Mon Sep 11, 2017 10:53 am
Her owning the house which can be used for long term care really helps her already good financial situation. Using a paid off house to pay for LTC if it is ever needed is basically my plan too. Be sure that you have all the right paperwork that is needed to sell the house if you need to and she is not able to sign the needed paperwork then. In some states it may work better if you have a special power of attorney to sell the real estate.

You should also make sure that there is paperwork in place so that someone else could handle her finances if something happens and she outlives you.
Dottie57 wrote:
Mon Sep 11, 2017 9:52 am
I really wanted someone to help me view mom's resources in a rational manner.
There is a bit of a learning curve but you can also look at some of her numbers with various withdrawal rates to see how she would have done in the past with the Firecalc web site. It assumes a portfolio of stocks and bonds so you will need to change that if she wants to hold CD's or something like that.

https://www.firecalc.com/

Buying a single premium immediate annuity(SPIA) is a very valid choice to consider but you need to be sure that you are actually getting a good SPIA. There are a lots of salespeople that will try to real junky products that are also called annuities. A SPIA is the only type of annuity that is worth considering.

Since she is 85 she could realistically live for another 15 or more years and with a SPIA there is a risk that inflation could be a problem or the insurance company she buys the SPIA annuity from could have financial problems. I would be cautious about putting more than half of her investments into a SPIA just for diversification. If she does want to put a lot into a SPIA then she could buy a couple from different insurance companies so that she would not be impacted as badly if an insurance company runs into financial problems.
dbr wrote:
Mon Sep 11, 2017 9:25 am
IRA contains some bonds totaling 173k. At rates between 4.5% and 8.5%. It generates about 11k.
You need to find out the details of just what these bonds are.

Unless the are some sort of risky junk bonds they are likely older bonds that were sold with a high coupon rate when interest rates were higher that are selling for a premium today.

This would mean that $173K you mentioned could be either the current market value the bonds or the total of the face values that she will get when the bonds mature. If the $173K is the total of the face value then the market value would be higher and her financial situation would be even better.

If they are high yielding junk bonds then that could be a problem since they would be too risky for her.
None of my mom's bonds are junk. I've checked. The 173k is not market value but face value or the money the bond was purchased at. Dollar values are in even multiples of 1k.

I am thinking of 1 SPIA now 1' later. Total of 200k. It all depends on what she wants to do which may be nothing.

curmudgeon
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Re: Another Help Mom (and me ) post

Post by curmudgeon » Mon Sep 11, 2017 11:48 am

Age 85 may be getting towards the top of the age range for good SPIA options. I'm not really familiar with that market, but you may want to do some investigations, as well as seeing what is available if age were 87, for example. I think I've seen comments that the age range 70-85 is somewhat of the best range for buying a SPIA.

Dottie57
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Re: Another Help Mom (and me ) post

Post by Dottie57 » Mon Sep 11, 2017 11:53 am

curmudgeon wrote:
Mon Sep 11, 2017 11:48 am
Age 85 may be getting towards the top of the age range for good SPIA options. I'm not really familiar with that market, but you may want to do some investigations, as well as seeing what is available if age were 87, for example. I think I've seen comments that the age range 70-85 is somewhat of the best range for buying a SPIA.
I am. She me companies do not go past 85.

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