Investment advice for 88 year old Grandmother

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marmat
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Investment advice for 88 year old Grandmother

Post by marmat » Tue Mar 13, 2018 8:59 pm

<t>Hello,<br/>
<br/>
I have been an ardent follower of Jack Bogle and the bogleheads community. I use this website as a reference for nearly all of my financial decisions. Thus, I am excited to be posting to the forum for the 1st time as I seek advice for my 88 year old grandmother.<br/>
<br/>
A bit of background: She has been widowed since 1998 and retired since about the same time. She comes from Nordic heritage and has firmly believed in saving money over the years. Unfortunately, we have had to transition her out of her home to an assisted living facility due to the challenges of independent living. Fortunately, she has done very well in her new community and we currently foresee her being healthy for at least 5-10 years (her mother lived to 100). Sadly, we recently sold the house she lived in since 1954 due to the difficulty of maintaining the property. <br/>
<br/>
The house/lot sold for mid six figures and the proceeds represent ~70% of her assets. We hope to invest the sale proceeds to her future healthcare, living, and retirement needs. However, we are unsure how to invest such a large sum of money, which is why we are turning to the forum. A bit more background. <br/>
<br/>

-Emergency funds: She has a 6 month emergency fund in a savings account
-Debt: She has no debt.
-Tax Filing Status: Single
-Tax Rate: 15% Federal, 5.35% State. These will likely be higher next year due to sale of house.
-State of Residence: MN
-Age: 88
-Desired Asset allocation: Unsure and reason why we are posting
-Income- None outside of social security (about $1600/month)<br/>
-Expenses- Nursing home is "all inclusive" at $5,000/month. Minimal additional expenses. Level of care and cost will
likely increase as she ages and requires additional services.
-Current Assets
-Cash from sale of house- 70% (mid six figures) currently in capital one savings account at 1.5%.
-Taxable and non-taxable retirement accounts -30% (low six figures). These are run by a wealth advisor she has known
for years, in her former state of residence. She is in a "moderately conservative" allocation thru her advisor, as
follows:<br/>
1.) Traditional IRA account: 50%
-All invested in American Funds U.S. Government Securities Fund® Class A AMUSX<br/>
2.) Taxable account: 50% with smattering of funds (all picked by wealth manager and seemingly very
complicated for me):<br/>
-Stock
Verizon (5%)<br/>
-Mutual Funds (equity)
John Hancock Fundamental Large Cap Core Fund Class I JLVIX (39%)
-Mutual Funds (bond or bond/equity)-
BlackRock High Yield Bond Portfolio Institutional Shares BHYIX (11%)
Franklin Income Fund Advisor Class FRIAX (22%)
Putnam Short Duration Income Fund Class Y PSDYX (16%),
BTS Tactical Fixed Income Fund Class I BTFIX (~1%)
-ETF
iShares Barclays 20+ Yr Treas.Bond TLT (~5%)
iShares Barclays 10 20 Yr Tresry Bnd Fd TLH (~4%)/<br/>


Our questions for the forum are this:
1.) What is a prudent way to invest/allocate this large amount of home sale proceeds? Ideally, we'd like to get a small/moderate amount of return/income to make her nest egg last for the next decade. On the flip side, we don't want to risk losing a significant amount in the next downturn given a timeline of ten years or so.
2.) Is overexposure to bonds in the current environment risky?
3.) As this is a taxable account, do tax-managed funds (i.e. VTMFX, VTCLX) make sense?
4.) Any thoughts on rearranging her Traditional and Taxable accounts? She has known him for years and likely wants to keep him around. However, we can make suggestions to him to alter the portfolio.

Ultimately, she is a very sweet lady and we want to make sure she has enough money to live in comfort. Thanks!

delamer
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Re: Investment advice for 88 year old Grandmother

Post by delamer » Tue Mar 13, 2018 9:34 pm

So your grandmother needs about $3400/month from savings currently to pay for her facility?

That comes to about $41,000/year.

How many years’ worth of expenses does she have between her current assets (including emergency fund) and the house sale money? In other words, divide $41,000 into her assets — how many years can she cover?

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Pajamas
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Re: Investment advice for 88 year old Grandmother

Post by Pajamas » Tue Mar 13, 2018 9:39 pm

Others might disagree but since she has relatively high but fairly predictable monthly expenditures, my preference would be to keep the bulk of the proceeds from the house sale in fixed income accounts such as CDs and a money market account with guaranteed principle rather than to accept the risk of investing it in stocks or bonds.

Right now she needs about $40k a year for her nursing home over what she receives from Social Security plus whatever she spends for clothing, sundries, gifts, etc., so say $45k a year. Mid-six figures is vague but is presumably about ten to twelve years of that and maybe some increases. If her costs can rise significantly and especially unpredictably if she needs more intensive care then that might be reasonably covered by her invested funds. In other words, avoid unnecessary risk.

The remainder of her investments could be managed with a more long-term view including for her heirs if she doesn't eventually spend that money.

Bonds might seem risky right up until stocks crash and then seem like a comparative haven even if they do drop. CDs and money market and savings bonds might be more appropriate for her circumstances than either stocks or bonds.

blastoff
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Re: Investment advice for 88 year old Grandmother

Post by blastoff » Tue Mar 13, 2018 10:39 pm

Could she be a candidate for some kind of annuity?

Not sure if they sell them to people that old but if you're fairly confident she's going to continue to defy the actuarial tables it could be in your interest.

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BL
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Re: Investment advice for 88 year old Grandmother

Post by BL » Tue Mar 13, 2018 10:56 pm

:|
Pajamas wrote:
Tue Mar 13, 2018 9:39 pm
Others might disagree but since she has relatively high but fairly predictable monthly expenditures, my preference would be to keep the bulk of the proceeds from the house sale in fixed income accounts such as CDs and a money market account with guaranteed principle rather than to accept the risk of investing it in stocks or bonds.

Right now she needs about $40k a year for her nursing home over what she receives from Social Security plus whatever she spends for clothing, sundries, gifts, etc., so say $45k a year. Mid-six figures is vague but is presumably about ten to twelve years of that and maybe some increases. If her costs can rise significantly and especially unpredictably if she needs more intensive care then that might be reasonably covered by her invested funds. In other words, avoid unnecessary risk.

The remainder of her investments could be managed with a more long-term view including for her heirs if she doesn't eventually spend that money.

Bonds might seem risky right up until stocks crash and then seem like a comparative haven even if they do drop. CDs and money market and savings bonds might be more appropriate for her circumstances than either stocks or bonds.
+1
I would assume a good % of the nursing home costs could be deductible. Will she get a statement from the "home" showing $ of medical care?
$250,000 capital gains on house would be tax-free. Perhaps she would have a 50% step-up on house gains at time of spouse's death. These would all lower taxes on income.

JBTX
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Re: Investment advice for 88 year old Grandmother

Post by JBTX » Tue Mar 13, 2018 11:14 pm

I’m going to guess she has about $600k to $800k. That would give her $60k to $80k over 10 years as long as her assets kept up with inflation. She only needs about $41k per year. She should be in good shape.

I’d put the house proceeds in CDs, federally insured online bank accounts, savings bonds, other low risk short term fixed income investments. Tax managed accounts...meh...maybe.

As to the rest, it is a bit more complicated than needed, but the investments seem relatively conservative. The amount in equities is less than 10%. As long as none of the funds are particularly high fees I’d be inclined to leave well enough alone.

gotester2000
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Re: Investment advice for 88 year old Grandmother

Post by gotester2000 » Wed Mar 14, 2018 3:57 am

I am thinking of annuity - SPIA. It will give her more than her needs and you dont have to manage anything - only issue is no inheritance left.

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CAsage
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Re: Investment advice for 88 year old Grandmother

Post by CAsage » Wed Mar 14, 2018 12:29 pm

I would guess the most important thing would be to see if you are happy with the stock/bond ratio (and if it were my Grandma I would be leaning 75~80% bond/cashlike things) and then reduce the expense ratios. I am pretty happy (at 59...) with a mix of Total Bond fund and Short Corporate and CDs (those are at least completely guaranteed not to drop). You could ladder CDs to plan to free up about $45k per year or so. You could do some into a SPIA, but not mandatory (by no means more than half - you don't need to juice her cashflow).

Work to move towards CDs (no expense ratios, find the best rates at depositaccounts.com), short bond funds (no long duration, rates are crawling up, so short/intermediate given her age) and a little stock. Watch financial advisor and fund expenses!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Jack FFR1846
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Re: Investment advice for 88 year old Grandmother

Post by Jack FFR1846 » Wed Mar 14, 2018 12:37 pm

$5k a month for a nursing home?!

Holy cow, that's a huge bargain. In my area, that is enough for assisted living. Not enough for a rest home, a third what nursing homes charge.
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stressed
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Re: Investment advice for 88 year old Grandmother

Post by stressed » Wed Mar 14, 2018 12:56 pm

inflation adjusted annuity for the required annual spending and a mix of stocks/bonds/cash for the rest of the money?

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BL
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Re: Investment advice for 88 year old Grandmother

Post by BL » Wed Mar 14, 2018 2:05 pm

Jack FFR1846 wrote:
Wed Mar 14, 2018 12:37 pm
$5k a month for a nursing home?!

Holy cow, that's a huge bargain. In my area, that is enough for assisted living. Not enough for a rest home, a third what nursing homes charge.
I think it is Assisted Living, so costs could go up greatly when/if she required nursing home care. Some assisted living homes also give out a statement showing deductible medical expenses.

marmat
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Re: Investment advice for 88 year old Grandmother

Post by marmat » Tue Mar 27, 2018 11:23 am

All,

Thank you for the advice. A little clarification. She is in an assisted living facility, not a nursing home.

Currently we have placed her money in CapitolOne savings account, yielding 1.5%. Sad but safe. We are considering doing a laddered CD or possibly a mix of 80%bond, 20% equity. We will discus that with her.

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mhadden1
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Re: Investment advice for 88 year old Grandmother

Post by mhadden1 » Tue Mar 27, 2018 9:38 pm

marmat wrote:
Tue Mar 27, 2018 11:23 am
Currently we have placed her money in CapitolOne savings account, yielding 1.5%. Sad but safe. We are considering doing a laddered CD or possibly a mix of 80%bond, 20% equity.
Low ability to take risk makes choices like this prudent.
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.

golfCaddy
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Re: Investment advice for 88 year old Grandmother

Post by golfCaddy » Tue Mar 27, 2018 9:49 pm

At that age, I would have it all in CDs/Treasuries(investment grade bonds if you want to be slightly aggressive). The only reason an 88 year old should be in stocks is if they have enough cushion, they're really investing for their heirs or the next generation.

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