Investment Decisions for Widower

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Blueskies60
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Investment Decisions for Widower

Post by Blueskies60 » Sat Mar 10, 2018 11:09 am

Hi, I am SO new to this. But here goes. I find myself in the sad, but thankful, position of having $500,000 to invest.

Debt - I own my home, have no debt. Home is worth approx. $550,000-$650,000. Am planning to have it appraised. Live in a "booming" community real estate wise. Have other property worth approx. $100,000-$140,000, paid for. Taxes and insurance run around $10,000 per year.
Expenses - 2 kids, 1 in college, 1 in HS. Both have educational trusts (for undergraduate tuition only, tho they're both planning to live at home with me while attending college).
Savings - $90,000 in a Fidelity Traditional IRA, $60,000 in American Funds 403b, $50,000 in a money market.
Earning - $70,000 per year
Retirement - Am 57yo, I intend to retire between the ages of 67-70 years, (hoping I can work until 70 provided my health remains intact).
Pension - Will be around $30,000 per year at retirement.

My question is this: How and where do I invest this money, and where I can see the greatest return with reasonable risk? I've looked into the Fidelity, Schwab, and Vanguard "robo" advisory platforms, as well as target index funds for the 3 companies. I've looked at 60/40 and 70/30 splits, (as well as 80/20 which seem far too risky). I'm looking for something simple and easy for me to navigate and understand. I'm also concerned about tax harvesting. The target funds appear to be problematic from a tax perspective. I'm thinking that perhaps I need a financial advisor, but every time I meet with one, my head starts to spin, lol!!! Their fees are onerous to say the least!!!

I heard about Bogleheads a number of years ago and essentially forgot about the book as I thought I'd never make enough money to invest much anyway, being in K-12 education. I've been reading your Boglehead forum and see how sharp you Bogleheads are! So I thought I'd take a stab at it, and put my current situation in front of all you good folks to get your thoughts on ways to proceed. Thank you for reading my post!

~sad but grateful

pkcrafter
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Re: Investment Decisions for Widower

Post by pkcrafter » Sat Mar 10, 2018 12:03 pm

Welcome, and I'm very sorry for your loss.

Are you saying you have 500k to invest in addition to the 270k you have listed? Is it all cash in a taxable account now?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Blueskies60
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Re: Investment Decisions for Widower

Post by Blueskies60 » Sat Mar 10, 2018 2:25 pm

Thanks for the reply Paul. Yes, I have 500K to invest, I already have 200K invested in a 403b, a traditional tax deferred account, and a taxed money market account. The 70K is my gross yearly salary.

sport
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Re: Investment Decisions for Widower

Post by sport » Sat Mar 10, 2018 2:46 pm

I would suggest having the 403b all in bonds. Then, invest the 500K in Vanguard Life Strategy Moderate Growth Fund. This is an all-in-one fund with an allocation of 60% stock and 40% bonds. Alternatively, you could use the Life Strategy Growth Fund. This is 80% stock and 20% bonds. Of course, the risk level is higher. Either of these options would require little maintenance and investing decisions from you.
Edit: At your age I would not want to me any more risky than 60/40. 50/50 might be more appropriate.

investor
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Re: Investment Decisions for Widower

Post by investor » Sat Mar 10, 2018 3:16 pm

I would consider putting the 500K into Wellington.

investor

Dottie57
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Re: Investment Decisions for Widower

Post by Dottie57 » Sat Mar 10, 2018 3:21 pm

Blueskies60 wrote:
Sat Mar 10, 2018 11:09 am
Hi, I am SO new to this. But here goes. I find myself in the sad, but thankful, position of having $500,000 to invest.

Debt - I own my home, have no debt. Home is worth approx. $550,000-$650,000. Am planning to have it appraised. Live in a "booming" community real estate wise. Have other property worth approx. $100,000-$140,000, paid for. Taxes and insurance run around $10,000 per year.
Expenses - 2 kids, 1 in college, 1 in HS. Both have educational trusts (for undergraduate tuition only, tho they're both planning to live at home with me while attending college).
Savings - $90,000 in a Fidelity Traditional IRA, $60,000 in American Funds 403b, $50,000 in a money market.
Earning - $70,000 per year
Retirement - Am 57yo, I intend to retire between the ages of 67-70 years, (hoping I can work until 70 provided my health remains intact).
Pension - Will be around $30,000 per year at retirement.

My question is this: How and where do I invest this money, and where I can see the greatest return with reasonable risk? I've looked into the Fidelity, Schwab, and Vanguard "robo" advisory platforms, as well as target index funds for the 3 companies. I've looked at 60/40 and 70/30 splits, (as well as 80/20 which seem far too risky). I'm looking for something simple and easy for me to navigate and understand. I'm also concerned about tax harvesting. The target funds appear to be problematic from a tax perspective. I'm thinking that perhaps I need a financial advisor, but every time I meet with one, my head starts to spin, lol!!! Their fees are onerous to say the least!!!

I heard about Bogleheads a number of years ago and essentially forgot about the book as I thought I'd never make enough money to invest much anyway, being in K-12 education. I've been reading your Boglehead forum and see how sharp you Bogleheads are! So I thought I'd take a stab at it, and put my current situation in front of all you good folks to get your thoughts on ways to proceed. Thank you for reading my post!

~sad but grateful
How much will you need in retirement? Will you receive SS in addition to the pension?

Expenses and retirement income need to be considered together.

Blueskies60
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Re: Investment Decisions for Widower

Post by Blueskies60 » Sat Mar 10, 2018 3:39 pm

Yes, I'll get both SS and a small pension. I'd like some advice on how to best invest money over the next 10-13 years. I like the target fund approach, but am concerned about taxes. the Schwab Intelligent Portfolio service claims to use tax harvesting to mitigate taxes. Perhaps using this type of advisor could help save me money as opposed to a target fund approach.

The Wizard
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Re: Investment Decisions for Widower

Post by The Wizard » Sat Mar 10, 2018 3:48 pm

OP says he wants to be able to tax loss harvest, should the opportunity present itself.
So any sort of balanced fund is therefore off the table

I'd recommend a three fund approach: total US stocks, total international stocks, and a bond fund of some sort depending on tax bracket...
Attempted new signature...

Zero Alpha
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Re: Investment Decisions for Widower

Post by Zero Alpha » Sat Mar 10, 2018 4:25 pm

I agree with The Wizard on the Three Fund Portfolio. Simple and tax efficient.

https://www.bogleheads.org/wiki/Three-fund_portfolio
viewtopic.php?t=88005

Tax efficient fund placement:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Blueskies60
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Re: Investment Decisions for Widower

Post by Blueskies60 » Sat Mar 10, 2018 4:40 pm

Thx for the reply Wizard.

My tax bracket, I believe, is 25%, (approx).

I assume you mean an index fund/three fund approach. Do you suggest 60% stocks and 40% bonds?

What do you think of balanced fund accounts?

Fidelity Balanced Fund - FBALX
or
Vanguard Balanced Fund - VBAIX

pkcrafter
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Re: Investment Decisions for Widower

Post by pkcrafter » Sat Mar 10, 2018 5:14 pm

Balanced funds aren't any better than target funds for tax efficiency. One choice you might consider is Vanguard's tax-managed balanced, VTMFX for the taxable account.

You might avoid bonds in taxable all together if you view all investment accounts as a single portfolio. If you post what's in the 403b and IRA, we can help you pull it together.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Peter Foley
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Re: Investment Decisions for Widower

Post by Peter Foley » Sat Mar 10, 2018 5:41 pm

While not mentioned here, I think it is to almost everyone's advantage to have a Roth IRA. I would fully fund a Roth IRA for the next 3 to 5 years and put all of that money into a total stock market fund.


With that as part of the picture look at all of your assets as a single portfolio and aim for about a 60/40 asset allocation with a good portion of your 403b in bonds. You can then decide as to what your taxable portfolio should be and invest accordingly. I like both the Wizard's and pkcrafter's suggestions. Your choice depends in part in how much you want to manage your investments. A 3 fund approach does not really take much management in my humble opinion.

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Watty
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Re: Investment Decisions for Widower

Post by Watty » Sat Mar 10, 2018 6:01 pm

It would be good to just park the money somewhere ultra safe like insured CD's for six months while you come up with a plan.

https://www.bogleheads.org/wiki/Managing_a_windfall

A few things to do while you are coming up with a long term plan.

1) Max out your retirement accounts. You may still be able to make deductible IRA or Roth contributions for 2017. For 2018 you may need to do something like increase your payroll retirement withholdings by $1,000 a month and then use some of your taxable money to live off on.

2) Make sure that you have plenty of car insurance and an umbrella policy since with the assets you are more likely to be sued.

3) Make sure that your beneficiaries are up to date on all your retirement accounts since that will normally override anything you say in a will. Also make sure that your will is up to date and also the related paperwork like powers of attorney and medical authorizations.

4) Consider if you car is relatively safe. Even if it is running well a 15 year old car likely does not have all the safety features that a current model would have. I not suggesting that you buy an expensive high end car with all the bells and whistles but even something like a new Corolla(I just bought one) has a laundry list of safety features that my last car did not have.


It sounds like you have seen the Bogleheads book, but if not it is very readable and a good place to start.

https://www.amazon.com/s/?search-alias= ... Bogleheads

Don't be afraid to take six months to learn more and come up with a long term plan. As someone else stated a three fund portfolio would likely be a good starting point. You could gradually move the money into those investments by dollar cost averaging.

https://www.bogleheads.org/wiki/Dollar_cost_averaging

malabargold
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Re: Investment Decisions for Widower

Post by malabargold » Sat Mar 10, 2018 7:45 pm

If you have:
up to 13 years to work,
plus a pension,
Plus a nest egg started,
plus paid off real estate,
plus
College paid for the kids
Plus
a good cash fund already on hand

The first of every month(or a day of your choice) I’d drip $20,000 into a total stock fund and $5000 into a total bond fund
until it’s all in

Be sure to max out Roth and HSA accounts

Do you want to gift a portion to your children and teach them how invest first-hand?

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nedsaid
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Re: Investment Decisions for Widower

Post by nedsaid » Sat Mar 10, 2018 8:22 pm

Watty wrote:
Sat Mar 10, 2018 6:01 pm

Nedsaid: I wanted to commend Watty for a really excellent post. Very, very sound advice.

It would be good to just park the money somewhere ultra safe like insured CD's for six months while you come up with a plan.

https://www.bogleheads.org/wiki/Managing_a_windfall

Nedsaid: You have come into $500,000 and you are feeling pressure to "do something." The reality is that this can wait. You are doubtlessly still grieving and that is not the best time to make financial decisions. The advice to park this money for 6 months in FDIC Insured CD's is a fantastic idea. You need some space and time for reflection. No need to do something immediately.

A few things to do while you are coming up with a long term plan.

1) Max out your retirement accounts. You may still be able to make deductible IRA or Roth contributions for 2017. For 2018 you may need to do something like increase your payroll retirement withholdings by $1,000 a month and then use some of your taxable money to live off on.

2) Make sure that you have plenty of car insurance and an umbrella policy since with the assets you are more likely to be sued.

3) Make sure that your beneficiaries are up to date on all your retirement accounts since that will normally override anything you say in a will. Also make sure that your will is up to date and also the related paperwork like powers of attorney and medical authorizations.

4) Consider if you car is relatively safe. Even if it is running well a 15 year old car likely does not have all the safety features that a current model would have. I not suggesting that you buy an expensive high end car with all the bells and whistles but even something like a new Corolla(I just bought one) has a laundry list of safety features that my last car did not have.

Nedsaid: Items 1, 2, and 3 are things that can be done right away. You want at least $1,000,000 in Umbrella insurance and perhaps $2 million. The suggestion about the car is a good one but it seems that everyone wants to buy a new house and car when they come into money. But Watty is right, you want to think about safety.

It sounds like you have seen the Bogleheads book, but if not it is very readable and a good place to start.

https://www.amazon.com/s/?search-alias= ... Bogleheads

Don't be afraid to take six months to learn more and come up with a long term plan. As someone else stated a three fund portfolio would likely be a good starting point. You could gradually move the money into those investments by dollar cost averaging.

https://www.bogleheads.org/wiki/Dollar_cost_averaging
A fool and his money are good for business.

krow36
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Re: Investment Decisions for Widower

Post by krow36 » Sat Mar 10, 2018 9:12 pm

I’d like to focus on your 403b with American Funds (AF). What other providers does you school district have on their 403b list? You can usually find the list on the district’s website. AF funds usually have a 5.75% sales load, and also have higher expense ratios than BH preferred index funds.

I agree with Watty that maxing out your 403b account is a good idea and you can use some of the 500k for living expenses while doing so. Does your school district also offer a 457 plan? What state are you in? Many states have excellent 457 plans that are available to all K-12 school districts. You can contribute 18.5k to both a 403b and to a 457 plan.

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nedsaid
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Re: Investment Decisions for Widower

Post by nedsaid » Sun Mar 11, 2018 2:51 pm

krow36 wrote:
Sat Mar 10, 2018 9:12 pm
I’d like to focus on your 403b with American Funds (AF). What other providers does you school district have on their 403b list? You can usually find the list on the district’s website. AF funds usually have a 5.75% sales load, and also have higher expense ratios than BH preferred index funds.

I agree with Watty that maxing out your 403b account is a good idea and you can use some of the 500k for living expenses while doing so. Does your school district also offer a 457 plan? What state are you in? Many states have excellent 457 plans that are available to all K-12 school districts. You can contribute 18.5k to both a 403b and to a 457 plan.
The silver lining with American Funds is that they are an excellent fund company. Their funds for the most part have performed and performed well. I can think of a lot of worse things to do with your money than pay the load and hold for the long term. Their funds have lower than average expense ratios for active funds. Hopefully, the 403b plan offered by the school district doesn't charge loads, many 401(k) plans offer American Funds without a load and at even cheaper expense ratios.

That being said, if you have better and cheaper options, look into them.
A fool and his money are good for business.

Blueskies60
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Re: Investment Decisions for Widower

Post by Blueskies60 » Sun Mar 11, 2018 8:08 pm

<r>Thank you for all your terrific ideas! Bogleheads, you are awesome, I am humbled by your kindness and willingness to share your knowledge with me.

I have more questions and thoughts related to your already great advice. Also,I have a bit of a plan. I've seen it as "triage", addressing items in order of greatest need.

1. I have a trust created by an attorney. Currently just have house and physical property in it. Thought I'd get my financial accounts organized first then place them in the trust. I have a will, but plan to look it over again this week and possibly make some changes to it. Beneficiaries are up to date on all retirement accounts.

2. "It would be good to just park the money somewhere ultra safe like insured CD's for six months while you come up with a plan." per Watty and Nedsaid
CD's. Currently have 500K in CD's earning 2.5% over 60 months. Penalty is 180 days interest for early withdrawl. I can live with it. My spouse died over a year ago, so I now feel ready to move on investing those funds in something more long term.

3. "Max out your retirement accounts" per Watty. I like the 60/40 3 index fund approach using the 403b for bonds. I can't contribute any longer to a 403b. My school district did away with my former 403b option, unbelievably. I may be working in a new district next fall and would be able to access a Prudential 403b there. Time will tell if I get hired there, God willing.

4. "Make sure that you have plenty of car insurance and an umbrella policy since with the assets you are more likely to be sued." per Watty.
I have $1mil on homeowners insurance, but plan to call ins. guy this week to make sure I am sufficiently insured on both home and auto.

5. I have a relatively new Subaru. I plan to gift it to my younger (15 year old) son next year, at which time I will get a new or newer used car. I do not care about flashy cars or homes. Neither do my sons. I do car about safety, reliability and value. Cars to me are a necessary nuisance and drain on one's money. Same with insurance.
My question is about my sons and accidents that they may be in. Could I be sued if they live with me and are my dependents, (which is the case) and cause an accident or injury?

6. I downloaded the Bogleheads book to Kindle and forwarded it to my sons and to two of my buddies.

7. I think Malabargold's 3 ideas are compelling 1. dripping $20,000 into a total stock fund and $5000 into a total bond fund, 2. max out Roth and HSA accounts 3. gifting a portion to your children and teach them how invest first-hand.

8. Finally, I really like the 3 fund strategy, like I stated in #3, with a ratio of 60% equities/stocks to 40 %bonds. The tough part would be deciding which to choose. Vanguard, Fidelity, or Schwab? ETF or non ETF? I welcome your thoughts.

9. Any and all thoughts, suggestions, or insights are welcome. Thank you again!

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mhadden1
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Re: Investment Decisions for Widower

Post by mhadden1 » Sun Mar 11, 2018 9:12 pm

Regarding federal taxes - OP's dependents should mean two years of Qualifying Widower filing status, then likely Head of Household. As mentioned by others, he could decide to spend some of his cash for expenses and use salary to maximize tax-deferred contributions. Then the child tax credit, maybe saver's credit, and possible college credits would greatly reduce or eliminate his federal tax. There might be 6-7 years where issues like interest in taxable accounts would be much less significant.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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Watty
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Re: Investment Decisions for Widower

Post by Watty » Mon Mar 12, 2018 6:40 am

Blueskies60 wrote:
Sun Mar 11, 2018 8:08 pm
My question is about my sons and accidents that they may be in. Could I be sued if they live with me and are my dependents, (which is the case) and cause an accident or injury?
Yes you could be sued and when there is a lawsuit anyone remotely involved is likely to be named in the lawsuits. How likely they are to win is a different question and not as clear but that would be something an umbrella policy should cover but you should ask your insurance agent about exclusions.

I am not a lawyer but if one of the sons has a history of bad driving, or something like alcohol problems and you know that and provide him with a car then you would likely be named in a lawsuit even if the car is in his name.

Blueskies60
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Re: Investment Decisions for Widower

Post by Blueskies60 » Mon Mar 12, 2018 9:30 pm

Thank you for all the wisdom and insight. It's all overwhelming, but having this forum is incredibly helpful. I'm so glad I found it. :sharebeer

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