Windfall advise for my parents

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certifiedfordtec
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Joined: Mon Apr 10, 2017 7:31 pm

Windfall advise for my parents

Post by certifiedfordtec » Sat Dec 09, 2017 12:21 pm

Hello fellow Bogleheads. I need a little bit of advise that I can pass along to my parents. I have some thoughts but am unsure.

Story is that my retired parents are coming into a windfall. Dad is 76 and not in great health and step mom is 68 and is in pretty decent health other than smokes a lot. Mom we are thinking will get in the neighborhood of 700k to 1 million.

I found out last year that they have been struggling financially and that they had lost a lot of their retirement savings back in the dot com bust. They don't appear to trust going to a financial advisor again. My stated she needed the money to last 30 years. They own their home which is paid for and cars are all paid off too. Only debts I believe are from credit cards. Their home is way out in the boonies of California and they have talked about moving closer to a hospital. Homes don't sell very fast in their neck of the woods.

I am willing to sit down with them and tell them what I would do but what I would do is different since I am still somewhat young at 47 and am still working. I have done well in my retirement accounts sticking with index funds.

Do they put the money they want to invest in Vanguard or a trading account like TD? She had asked about an Ira but from what I looked up they can't since they don't have earned income.

Ideas? Thoughts? Thanks in advance!

Dottie57
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Re: Windfall advise for my parents

Post by Dottie57 » Sat Dec 09, 2017 12:30 pm

Intermediate or short term TIPs funds. Look for banks or credit unions with higher CD rates. Maybe purchase 10k each of ibonds each year. Or Intermediate bonds fund.

I know many here hate annuities, but using 100 or 200kin a joint SPIA would give some nice income. The rest could be in a more aggressive portfolio.
Last edited by Dottie57 on Sat Dec 09, 2017 12:31 pm, edited 1 time in total.

mbres60
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Joined: Tue Jul 03, 2007 1:47 pm

Re: Windfall advise for my parents

Post by mbres60 » Sat Dec 09, 2017 12:30 pm

First.... pay off the credit card debt. Then I would suggest the Life Strategy Income fund (or target date retirement fund that is for income). Otherwise, the 3 fund portfolio would work. I'm sure other smarter people than I will come up with other ideas. Not knowing much about their assets and if they have any pensions, etc it is really just a guess on what to do. I am assuming this is taxable money but could be wrong.

minesweep
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Location: PA

Re: Windfall advise for my parents

Post by minesweep » Sat Dec 09, 2017 12:32 pm

The Bogleheads Wiki may be of help:

Managing a windfall

runner540
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Joined: Sun Feb 26, 2017 5:43 pm

Re: Windfall advise for my parents

Post by runner540 » Sat Dec 09, 2017 12:52 pm

mbres60 wrote:
Sat Dec 09, 2017 12:30 pm
First.... pay off the credit card debt. Then I would suggest the Life Strategy Income fund (or target date retirement fund that is for income). Otherwise, the 3 fund portfolio would work. I'm sure other smarter people than I will come up with other ideas. Not knowing much about their assets and if they have any pensions, etc it is really just a guess on what to do. I am assuming this is taxable money but could be wrong.
I think you need more info about expenses and income (SS, etc.) to figure out a budget, and then properly understand how the windfall might increase the budget. I would not immediately pay off the credit card debt if they are still accruing new debt - that means they are living above their means and will exhaust the windfall, if they don't know what's coming in and what they can spend. I know this is not mathematically optimal in the short term, but paying it off with a windfall will paper over the underlying mismatch between expenses and income.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Windfall advise for my parents

Post by delamer » Sat Dec 09, 2017 12:57 pm

Don't give any further advice until you get more details, particularly about their current income and how it compares to their expenses. If they have been using their credit cards to make up for an income shortfall, you need to know that and take it into account when making suggestions. You'll also need to find out if they have any other savings/investments

You are correct that they would need earned income to open an IRA, so that is a no-go.

It will almost certainly make sense to pay off the credit card debt as soon as possible.

They should see an attorney about wills, estate planning, etc. if they have not already or if the inheritance makes a significant change in their situation (which it sounds like it will).

You are on the right track with index funds for them; can't go wrong that way. :happy

Try to get a feel from them as to whether they are risk-adverse due to age and/or experience. That will guide you in allocating the windfall. You might want to set up an automatic deposit from their investments into their checking to cover expenses. If you aren't already familiar with the "bucket approach" to retirement investing, it is worth considering for them.

Good luck.

mouses
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Re: Windfall advise for my parents

Post by mouses » Sat Dec 09, 2017 1:15 pm

Another comment about needing to know spending vs. income (including Social Security now and after one passes?) Also the unknown amount of credit card debt could be a big factor.

Closeness to medical care is a big factor as one gets older.

certifiedfordtec
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Joined: Mon Apr 10, 2017 7:31 pm

Re: Windfall advise for my parents

Post by certifiedfordtec » Sat Dec 09, 2017 1:21 pm

So regarding income, they both are on SS. I don't know what the actual amount are. But I know mom took hers at 62.

I don't believe there is any pension, if there is it is dad's and it is very minimal. Mom's pension was cashed in to buy the house outright back in the mid 90's. I don't think they want too much risk but I don't think they want it to earn nothing.

I don't know how debt on the CC are but did tell me they were living beyond their means. I was pretty surprised by all this because they always instilled their belief of paying your debts and living within your means.

I will know more when I go visit over the holidays.

certifiedfordtec
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Joined: Mon Apr 10, 2017 7:31 pm

Re: Windfall advise for my parents

Post by certifiedfordtec » Sat Dec 09, 2017 1:25 pm

I will add that they have had a living trust that was done when they bought their retirement house.

Not sure if it matters much but the bulk if not all of the windfall will be from the selling of real estate.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Windfall advise for my parents

Post by delamer » Sat Dec 09, 2017 2:49 pm

certifiedfordtec wrote:
Sat Dec 09, 2017 1:25 pm
I will add that they have had a living trust that was done when they bought their retirement house.

Not sure if it matters much but the bulk if not all of the windfall will be from the selling of real estate.
Wait, are you saying that there windfall is coming from the expected sale of their home? Or is it other real estate?

The way you wrote your initial post, I thought they were getting an inheritance or some kind of windfall not related to the home sale.

If it is from the house, then that changes things because they will need to use some of the windfall to provide housing for themselves.

certifiedfordtec
Posts: 8
Joined: Mon Apr 10, 2017 7:31 pm

Re: Windfall advise for my parents

Post by certifiedfordtec » Sat Dec 09, 2017 5:52 pm

delamer wrote:
Sat Dec 09, 2017 2:49 pm
certifiedfordtec wrote:
Sat Dec 09, 2017 1:25 pm
I will add that they have had a living trust that was done when they bought their retirement house.

Not sure if it matters much but the bulk if not all of the windfall will be from the selling of real estate.
Wait, are you saying that there windfall is coming from the expected sale of their home? Or is it other real estate?

The way you wrote your initial post, I thought they were getting an inheritance or some kind of windfall not related to the home sale.

If it is from the house, then that changes things because they will need to use some of the windfall to provide housing for themselves.
They own their retirement home and the inheritance will be from the sale of grandma's house and a cabin in the mountains.
Regarding their home, they are thinking of buying a new home closer to a hospital and civilization and then try selling theirs. Homes in their area do not sell fast so it could be on the market for a long time.

certifiedfordtec
Posts: 8
Joined: Mon Apr 10, 2017 7:31 pm

Re: Windfall advise for my parents

Post by certifiedfordtec » Sun Dec 10, 2017 8:11 pm

So I talked with my dad little on the phone today about their situation.

Dad gets $2059 and mom get $750 in SS. No pension. They have no CC debt but two loans of $10k each. Approximately 6.5%and 7.5. Nothing else outstanding.

I asked how much are they thinking they would need to live comfortably on and his answer was $3500 per month. I suggested shooting maybe for $4000 just so it is comfortable. They are homebodies so they don't travel or do any that would cost a lot.

I was surprised when he said that they didn't want anything in the stock market. Again, they were stung in the dot com bust by their advisor and lost I believe over half of their savings. I understand they went ultra conservative after that because he kept mentioning a Galic account that pays 3% fixed amount.I reminded him that that barely covers inflation and his response was that the interest would cover his property taxes.

After talking for a bit, I told him I would think about options and for him to keep an open mind about investing at least a portion of the windfall. I kept stressing that mom wanted it to last 30 years.

I'll add that if they stay in their house they will need to put on a roof. Not a ton of money I think since it is a manufactured home at maybe 1700 sf and they want a new car. They have 2 primary cars, 1990 Toyota 4Runner with 350k+ miles on it and a 2007 Toyota Tacoma with maybe 80k miles. I think they just want to replace 4Runner. They got their monies worth!

So anymore suggestions now on what to do with it and actually now on how to convince them not to just put it in a saving account?

galectin
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Re: Windfall advise for my parents

Post by galectin » Sun Dec 10, 2017 8:23 pm

certifiedfordtec wrote:
Sun Dec 10, 2017 8:11 pm
So I talked with my dad little on the phone today about their situation.

Dad gets $2059 and mom get $750 in SS. No pension.
Mom should be eligible for a spousal benefit of half of Dad's SS, which is higher than the $750 that she seems to be getting on her own acct. They should contact SS and convert to that.

delamer
Posts: 5855
Joined: Tue Feb 08, 2011 6:13 pm

Re: Windfall advise for my parents

Post by delamer » Sun Dec 10, 2017 8:50 pm

galectin wrote:
Sun Dec 10, 2017 8:23 pm
certifiedfordtec wrote:
Sun Dec 10, 2017 8:11 pm
So I talked with my dad little on the phone today about their situation.

Dad gets $2059 and mom get $750 in SS. No pension.
Mom should be eligible for a spousal benefit of half of Dad's SS, which is higher than the $750 that she seems to be getting on her own acct. They should contact SS and convert to that.
Depends. If she took her SS at 62, she may be getting a reduced spousal benefit.

delamer
Posts: 5855
Joined: Tue Feb 08, 2011 6:13 pm

Re: Windfall advise for my parents

Post by delamer » Sun Dec 10, 2017 9:06 pm

certifiedfordtec wrote:
Sun Dec 10, 2017 8:11 pm
So I talked with my dad little on the phone today about their situation.

Dad gets $2059 and mom get $750 in SS. No pension. They have no CC debt but two loans of $10k each. Approximately 6.5%and 7.5. Nothing else outstanding.

I asked how much are they thinking they would need to live comfortably on and his answer was $3500 per month. I suggested shooting maybe for $4000 just so it is comfortable. They are homebodies so they don't travel or do any that would cost a lot.

I was surprised when he said that they didn't want anything in the stock market. Again, they were stung in the dot com bust by their advisor and lost I believe over half of their savings. I understand they went ultra conservative after that because he kept mentioning a Galic account that pays 3% fixed amount.I reminded him that that barely covers inflation and his response was that the interest would cover his property taxes.

After talking for a bit, I told him I would think about options and for him to keep an open mind about investing at least a portion of the windfall. I kept stressing that mom wanted it to last 30 years.

I'll add that if they stay in their house they will need to put on a roof. Not a ton of money I think since it is a manufactured home at maybe 1700 sf and they want a new car. They have 2 primary cars, 1990 Toyota 4Runner with 350k+ miles on it and a 2007 Toyota Tacoma with maybe 80k miles. I think they just want to replace 4Runner. They got their monies worth!

So anymore suggestions now on what to do with it and actually now on how to convince them not to just put it in a saving account?
If they need just another $1000/month from the nest egg to live comfortably, then they don't need to take much risk. Let's say they end up with $800,000. At $12,000 per year, that is only a 1.5% withdrawal. So if they'd prefer to keep their withdrawal rate low and not have to take risk with the money, that is a reasonable choice. If they wanted/needed $3000 per month from their nest egg, that would be different.

(One issue, though, is what happens with Social Security when one parent dies. The survivor will receive only your father's benefit, and lose the $750 of your mother's. That may not be a problem if expenses go down by $750 too, but it may mean a larger withdrawal from the nest egg to compensate.)

In sum, however, listen to your parents' instincts on this. Build a CD ladder and/or find a high yield savings account to put the nest egg in. Their psychological comfort is more important than convincing them to the invest for income that they don't need.

Your frustration regarding their reluctance to invest in stocks is understandable, but it is their choice to make. Don't push them into stocks and then have to deal with their anger/angst when the inevitable market downturn happens.

certifiedfordtec
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Joined: Mon Apr 10, 2017 7:31 pm

Re: Windfall advise for my parents

Post by certifiedfordtec » Tue Dec 12, 2017 9:19 pm

Thanks for all the suggestions.

HIinvestor
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Re: Windfall advise for my parents

Post by HIinvestor » Tue Dec 12, 2017 9:40 pm

I agree with the others. Since your folks don’t need much in the way of income from the windfall, conservative investments like CD ladder, high interest savings/checking and tax exempt bonds are options that should allow them to sleep well at night.

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