Helping mom with inheritance. Help!

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
ElmoHongZito
Posts: 84
Joined: Tue Mar 27, 2018 9:17 am

Helping mom with inheritance. Help!

Post by ElmoHongZito » Wed Jun 20, 2018 7:08 pm

My mother of 65 years old will be recieving a small inheritance of 80k. I would really like some guidance on how she can invest a portion of it and rebalance every so often so that it lasts her as long as possible.

I am assuming that any capital gains she would earn will not be taxed based on her very low income.

She does not currently work and she collects between $700 and $800 per month in social security. Her expenses are low due to the fact that she lives a section-8 housing effieciency, drives a financed base corolla that I put 5k down on, and her only other expenses are car insurance, cell phone, groceries, and cigarettes (*I know...i keep trying).

How do we stretch these 80k so that she can have a litte bit of monthly relief but not burn through it any time soon.

I know because of her age its not smart to expose that money to much risk, but I am open to any creative ideas you can share.

Thank you in advance and let me say that these are the situations where the BH forum is so extremely invaluable.

Gill
Posts: 4387
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Helping mom with inheritance. Help!

Post by Gill » Wed Jun 20, 2018 7:27 pm

You might consider an SPIA (single premium immediate annuity) for perhaps $50,000 or so. This could give her an additional monthly income of about $275 with a $50,000 investment or $425 if all was invested.
Gill
Last edited by Gill on Wed Jun 20, 2018 7:31 pm, edited 2 times in total.

User avatar
Sandtrap
Posts: 4961
Joined: Sat Nov 26, 2016 6:32 pm
Location: 10/90 Allocation - Hawaii😀 Northern AZ.😳

Re: Helping mom with inheritance. Help!

Post by Sandtrap » Wed Jun 20, 2018 7:28 pm

At 65, and in her situation, there are any number of options. I depends on her exact financial situation.
1. If there are medical or other vital expense on the short horizon, then the funds should have security of principal and liquidity such as short term CD's, High Yield Accounts, Prime Money Market, etc. (2-3% return average)

2. At your mother's age, $80k, and financial position, she can't afford to go through long term market fluctuations with loss of principal. And, you state that you are interested in returns. Thus:
An SPIA, (Single Premium Immediate Annuity) would yield approx. $423/month for the rest of her life.
Go here for the calculator:
https://www.immediateannuities.com
The advantage is that returns are more assured than when invested in funds.

*****3. I'm not sure how that extra income would impact her existing benefits. You'd have to look in on that. (Very Important).

4. You can go to this site to get an averaged projection on how long $80k might last in a portfolio at a certain annual spending rate.
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
You can see how there might be higher returns than an SPIA per given dollar but without the reassurance that it will last a lifetime.
Given this: you might want to look into any number of balanced funds at Vanguard, Schwab, etc. Such as the "Balanced Index Fund" at Vanguard.

Here's a chart from Immediate Annuities for an SPIA. Not sure what State of residence. Age 65. Female.
Image
j
Last edited by Sandtrap on Wed Jun 20, 2018 7:37 pm, edited 1 time in total.

User avatar
KlingKlang
Posts: 670
Joined: Wed Oct 16, 2013 3:26 pm

Re: Helping mom with inheritance. Help!

Post by KlingKlang » Wed Jun 20, 2018 7:30 pm

In this case the first thing that I would check is how much extra income she can earn without losing her eligibility for Section 8 housing assistance. This varies by location.

If she has no experience with investing I would suggest using an all-in-one self balancing fund so that she doesn't have to worry about rebalancing. Vanguard is the investment firm that I am most familiar with, they have a number of funds that cover a wide range of risk levels.

ExitStageLeft
Posts: 527
Joined: Sat Jan 20, 2018 4:02 pm

Re: Helping mom with inheritance. Help!

Post by ExitStageLeft » Wed Jun 20, 2018 7:43 pm

One balanced fund option would be Vanguard Target Retirement Income Fund (VTINX). If she wants to preserve capital, she could draw 4% per year and perhaps get some slight growth on top of that. $3200 per year would be $267 per month. The capital would be available if needed for a major life event.

User avatar
Peter Foley
Posts: 4378
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Helping mom with inheritance. Help!

Post by Peter Foley » Wed Jun 20, 2018 7:58 pm

Given her situation I would be hesitant to have her manage the money. A SPIA is the best option.

Gill
Posts: 4387
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Helping mom with inheritance. Help!

Post by Gill » Wed Jun 20, 2018 8:13 pm

Peter Foley wrote:
Wed Jun 20, 2018 7:58 pm
Given her situation I would be hesitant to have her manage the money. A SPIA is the best option.
Agree. A regular monthly income seems to better suit the situation.
Gill

bltn
Posts: 121
Joined: Mon Feb 20, 2017 9:32 pm

Re: Helping mom with inheritance. Help!

Post by bltn » Wed Jun 20, 2018 9:11 pm

If the income does not interfere with any of her benefits, housing or medicaid or food stamps, then the annuity sounds like the best option for her. Be sure about the requirements for the benefits.

User avatar
celia
Posts: 7903
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Helping mom with inheritance. Help!

Post by celia » Thu Jun 21, 2018 12:22 am

First, find out how more income will impact her housing costs.

If going the annuity route, don't put more than 2/3 of it into the annuity since she needs to have some cash ready for an emergency. If she was able to get another $400 a month in annuity income, I would have her save AT LEAST $100 of it each month to build her own emergency fund. Explain that inflation will make the price of car insurance, food, and cigarettes (cough, cough) go up but the annuity won't increase over time.

In other words, even though her income is low, she needs to learn how to save some of it. Maybe you can help her set up a monthly withdrawal from checking (if that is where the annuity would go) into a savings account (where it is not easy to get to, like at another financial institution).

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Helping mom with inheritance. Help!

Post by dbr » Thu Jun 21, 2018 9:33 am

I would climb in the bandwagon of splitting the money between an SPIA and retaining some of it for emergencies. Is there any other resource for emergencies? If that is actually you, then maybe all the amount could go for an SPIA. Also maybe there are some current back expenses that need paying?

Those who have warned about effect of an annuity on benefits are correct. Please be very careful about this. The mere existence of the assets also needs to be considered. Please take an exhaustive and detailed look at conditions on current benefits and any future benefits that might exist such as elderly waivers and so on.

ExitStageLeft
Posts: 527
Joined: Sat Jan 20, 2018 4:02 pm

Re: Helping mom with inheritance. Help!

Post by ExitStageLeft » Thu Jun 21, 2018 1:33 pm

The options recommended so far are:

1) SPIA of the full amount, yields around $413 per month of income with complete loss of capital.

2) SPIA of partial amount, invest the remainder appropriately. An SPIA of $40,000 yields $206 per month with 50% loss of capital.

3) Invest entirety in appropriate index funds. With a 50/50 allocation she could spend 3.5% per year and likely have growth of the assets. This would result in $233 per month adjusted annually for inflation with a likely increase of 30% in capital over fifteen years.

For 2018 the poverty level for an individual is $12,140. If this is a threshold for any of the benefits she currently receives, she can stay below it by keeping monthly income below $1000. Actual income limits may be higher, as it looks like 138% of the federal Poverty Level is the threshold for expanded Medicaid. The HUD website will break down income limits by local housing area.

OP, there are assumptions being made about her ability to manage the funds herself. Only you and she know the extent to which these assumptions apply. If you feel that she shouldn't have access to her funds an SPIA is one solution to prevent reckless spending. Another would be to put the money in a trust with you as the trustee. I was also thinking you could set her up with a brokerage account with Vanguard, Fidelity or Schwab and you retain the login password. But that probably is counter to the brokerage's terms of service so that option shouldn't be considered unless its blessed by the brokerage.

Gill
Posts: 4387
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Helping mom with inheritance. Help!

Post by Gill » Thu Jun 21, 2018 2:02 pm

ExitStageLeft wrote:
Thu Jun 21, 2018 1:33 pm
Another would be to put the money in a trust with you as the trustee.
Probably not a good idea. Not very cost effective for this amount. Also, having a daughter control principal for her mother is also not advisable.
Gill

ElmoHongZito
Posts: 84
Joined: Tue Mar 27, 2018 9:17 am

Re: Helping mom with inheritance. Help!

Post by ElmoHongZito » Fri Jun 22, 2018 5:36 pm

ExitStageLeft wrote:
Thu Jun 21, 2018 1:33 pm
The options recommended so far are:

1) SPIA of the full amount, yields around $413 per month of income with complete loss of capital.

2) SPIA of partial amount, invest the remainder appropriately. An SPIA of $40,000 yields $206 per month with 50% loss of capital.

3) Invest entirety in appropriate index funds. With a 50/50 allocation she could spend 3.5% per year and likely have growth of the assets. This would result in $233 per month adjusted annually for inflation with a likely increase of 30% in capital over fifteen years.

For 2018 the poverty level for an individual is $12,140. If this is a threshold for any of the benefits she currently receives, she can stay below it by keeping monthly income below $1000. Actual income limits may be higher, as it looks like 138% of the federal Poverty Level is the threshold for expanded Medicaid. The HUD website will break down income limits by local housing area.

OP, there are assumptions being made about her ability to manage the funds herself. Only you and she know the extent to which these assumptions apply. If you feel that she shouldn't have access to her funds an SPIA is one solution to prevent reckless spending. Another would be to put the money in a trust with you as the trustee. I was also thinking you could set her up with a brokerage account with Vanguard, Fidelity or Schwab and you retain the login password. But that probably is counter to the brokerage's terms of service so that option shouldn't be considered unless its blessed by the brokerage.
First I have to thank everyone that has commented. All this great info will give me a starting point to understand what factors I should consider and what vehicles I should read up on. Thanks for all the details as this will save me so much time.

The last reply from @ExitStageLeft has a summary of all the strategies suggested thus far so I will reply to his post to clarify a couple things and see what further thoughts you guys can provide.

First of all my mother cannot manage the funds herself. She is very irresponsable when it comes to managing any amount of money and is completely unaware of the concept of saving. She is lucky if she gets through the month every month. This is why I need to make these decisions for her before the money is transferred.

As far as the thresholds for the low poverty benefits she is recieving I did a search and this is what I found...

Section 8 yearly income limit for single person where she lives : $39,700

Pennsylvania Medicaid yearly max income level for single person: $16,040
*She is also getting medicare since she just turned 65

Maximum monthly gross income for elderly in Pennsylvania for SNAP (food stamps): $2010

Since her only income right now is social security and is only about $700 to $800 per month, it appears based on the monthly annuity amounts that have been shared in the previous threads that she will most likely remain below the thresholds to maintain benefits even if it all went into an SPIA. Hopefully the asset/capital itself does not affect benefits.

As far as an emergency fund, that would most likely be me in the case it would be needed. Given her current lifestyle, the likelyhood of her needing a large chunck of immediate cash is pretty low to non-existant I would think.

I like the idea of the SPIA because it appears that will give the highest secure monthly income however the idea of a 50/50 allocated index fund where she only spends 3.5% also has its merit because she could leave something for her 4 grandchildren one day. I guess it depends if $413 or $233 per month truly make a difference in her quality of life. I would think not but that’s not my call.

Would still love to hear some of your feedback now that you better understand the circumstances.

Thanks again

ExitStageLeft
Posts: 527
Joined: Sat Jan 20, 2018 4:02 pm

Re: Helping mom with inheritance. Help!

Post by ExitStageLeft » Fri Jun 22, 2018 6:30 pm

Thanks for the additional info.

She's making payments on the car, correct? What's the rate on the car note? It might be better to pay off the car then invest the rest in a SPIA. I'm thinking that would improve her cash flow, but its too late on a Friday to think it through myself. I'd compare the difference in total spendable after car payment.

Post Reply