30 y/o Boglehead student, advice for 65 year old Retiring Father

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Tue Oct 16, 2018 1:06 pm

Long time reader, first time poster. I’ve learned so much here. My wife and I (low 30’s) put away roughly 2k/ month in a low cost 3-fund vanguard index portfolio weighted at 90% stocks.

But this is about advice for my father. Age 65, retiring soon with $400k in his 401k, and that’s about it for savings. My mom will work 2-3 more years and also retire with 400k in her 401k. They will also inherent 150-200k in the next 5-10 years. My father will roll his 401k into an IRA and is unsure the way forward.

My parents met with a financial advisor who wants the classic 1% (in addition to the fund fees, I assume). My parents are both incredibly smart, but care and know little about investing. My father still equates owning stocks to “gambling”

I’ve spelled out what a 1.0 – 1.5% fee looks like in $$ over 20 years, and may have convinced my father to instead go it alone with a simple 3 fund index portfolio of admiral shares at vanguard with his IRA. Weighted something like 65% bonds / 35% stocks in the usual vanguard stock/bond funds. I'm working under the assumption they can get 3-4% return. He is 65, incredibly healthy, and has history of long lifespans in his family. Same for my mother.

My parents have minimal living expenses (no debt whatsoever and no house payment) and when my mom retires in 3 years, they want to withdraw 2-2.5k / month from their IRA in addition to their social security.

My question: have I missed anything obvious in recommending a do-it-yourself 3-4 vanguard index fund portfolio for my 65-year-old father who will retire soon and roll over his $400k 401k into an IRA? (I realize there are tax considerations, roth conversion options, etc am ignoring that for this post).

Much appreciated, and also in debt to you all for the wisdom throughout this forming.

Soon2BXProgrammer
Posts: 475
Joined: Mon Nov 24, 2014 11:30 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Soon2BXProgrammer » Tue Oct 16, 2018 3:32 pm

the only thing you might be missing is keeping the money in the 401k is an option..

you might want to review the investment choices to make sure there isn't a fund in the plan that you would want that doesn't exist outside of the 401k.

Example; my father has a stable value fund that pays over 4% currently and has a 3% floor guaranteed. its basically free lunch.

delamer
Posts: 6263
Joined: Tue Feb 08, 2011 6:13 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by delamer » Tue Oct 16, 2018 4:50 pm

If your parents really are uninterested in dealing with investments, then they could use the Vanguard Conservative Growth LifeStrategy Fund rather than a 3 or 4 fund portfolio:

https://investor.vanguard.com/mutual-fu ... rview/0724

But before making any decisions, they should determine what your mother’s is invested in in her 401(k). A married couple should be deciding and implementing their desired allocation across all of their retirement savings, not for each individual account.

User avatar
David Jay
Posts: 5677
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by David Jay » Tue Oct 16, 2018 5:10 pm

LS Conservative Income is a great choice if he is deathly afraid of the stock market. Only a 20% stock allocation, a 20% drop in the stock market is a 4% drop in asset value.
Last edited by David Jay on Tue Oct 16, 2018 5:37 pm, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

RadAudit
Posts: 3055
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by RadAudit » Tue Oct 16, 2018 5:18 pm

David Jay wrote:
Tue Oct 16, 2018 5:10 pm
LS Conservative is a great choice. Only a 20% stock allocation, a 20% drop in the stock market is a 4% drop in asset value.
OP, good advice. But, you might want to check Vanguard's web site. LS Conservative Growth may be 40% stocks. Or, maybe I'm reading it wrong.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

User avatar
David Jay
Posts: 5677
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by David Jay » Tue Oct 16, 2018 5:22 pm

RadAudit wrote:
Tue Oct 16, 2018 5:18 pm
David Jay wrote:
Tue Oct 16, 2018 5:10 pm
LS Conservative is a great choice. Only a 20% stock allocation, a 20% drop in the stock market is a 4% drop in asset value.
OP, good advice. But, you might want to check Vanguard's web site. LS Conservative Growth may be 40% stocks. Or, maybe I'm reading it wrong.
My mistake - LS Income was in my mind, I wrote LS Conservative after reading delamer’s post above.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
Watty
Posts: 14338
Joined: Wed Oct 10, 2007 3:55 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Watty » Tue Oct 16, 2018 6:15 pm

The main reasons not to use a target date retirement fund are;
1) You don't have a good low cost one in a 401k
2) You have a lot of money in taxable accounts so you are worried about tax efficiency.

Neither of these sounds like an issue for them if they roll the money into an IRA. People sometimes think of a target date fund as being some sort of dumbed down investing for dummies choice that needs to be improved on but in the right situation they are an excellent choice. Unless they have a compelling reason not to use a target date fund, like a 2020 fund, then it could be the best choice for them.

I retired a few years ago and I put almost my retirement money into a Vanguard target date fund so that it will be easier to manage as I age or if my wife who knows less about finances has to manage it some day.


A couple of things;

1) They will be needing to make medicare choices soon. I would highly recommend the book "Medicare for Dummies" despite the title. If you get it from a library make sure that it is the most current edition.

2) When to start Social Security is a big decision. This web site was created by a poster here who wrote a book on Social Security and it can help with that. It is mainly a guideline though since there can be other factors like taxes that are not accounted for in the calculations.

https://opensocialsecurity.com/

3) It is important for them to understand how the taxes on Social Security work since the way it is taxes can put you in a higher than expected tax bracket. They also need to look at their numbers three ways, as a couple and as if either of them survives the other. The survivor may be in a higher single tax bracket.

It would be good to do a dummy tax returns for them at various ages since with the standard deduction they may owe no federal taxes while they are filing a joint return. Without crunching the numbers it less clear for how a single survivor would be taxed. It may make sense to do Roth conversions in a low tax bracket before starting Social Security if they will be in a higher tax bracket after starting Social Security.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits
jefscott7 wrote:
Tue Oct 16, 2018 1:06 pm
My parents have minimal living expenses (no debt whatsoever and no house payment) and when my mom retires in 3 years, they want to withdraw 2-2.5k / month from their IRA in addition to their social security.
That may be a bit high. $24,000 a year is 6% of their $400K nestegg. While there are all sorts of assumptions and qualifications academic studies suggest that 4% ($16,000 a year) is a more reasonable safe withdrawal rate for a 30 year retirement starting at the age of 65, but that is only a guideline.

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

It gets a bit more complex since it sounds like they have home equity they could tap if they needed it so that helps, but if one of the survives the other they would only get one Social Security check which would put the survivor on a much tighter budget. The Social Security web site above will likely suggest that one of them delay starting Social Security until 70 so be sure to look at their numbers based on that.

Their expenses will also be different at different ages. If their initial withdrawal rate includes money for things like travel that they might not do so much of when they get into their late 70s or older then it might work OK.

Don't take the 4% safe withdrawal rate as something that is engraved in stone, it is more of a caution flag that says that it should be looked into in more detail.
jefscott7 wrote:
Tue Oct 16, 2018 1:06 pm
My parents met with a financial advisor who wants the classic 1% (in addition to the fund fees, I assume).
With a 4% safe withdrawal rate that 1% is a quarter of their income each year.

User avatar
SevenBridgesRoad
Posts: 59
Joined: Sat Jul 07, 2018 12:14 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by SevenBridgesRoad » Tue Oct 16, 2018 7:19 pm

You are a good son for trying to steer your father in a better direction.

You're getting some good ideas here. A couple of additional thoughts:

1) I get concerned whenever we essentially talk people into doing something. Your dad considers stocks as gambling. You may be able to talk him into buying an equity fund, but will he really stay the course? I'd suggest you guide him to more reading/learning about why. Reading JL Collins Stock Series for example https://jlcollinsnh.com/stock-series/ . The more he understands the why, the better for him (and you). The "you" part is important. If he does this reluctantly, when stocks inevitably go down will he get upset with you? Will you feel like you bear some responsibility? Guilt? Continued education is important to true buy-in. He's not gambling, he's becoming an owner in thousands of businesses. But he needs to see this as a good thing.

2) Vanguard LifeStrategy funds have been mentioned. Good suggestion for simplicity. If he goes this route, it's probably best to make sure he's on-board with the international allocations. There's a lot of opinions in the forum about international. The Vanguard LS Income Fund has 12.1% total stock market and 7.9% international stock market, more international % than some folks would be comfortable with. Probably worth him understanding.
There are stars in the Southern sky | And if ever you decide | You should go | There is a taste of time sweetened honey | Down the Seven Bridges Road

hudson
Posts: 1506
Joined: Fri Apr 06, 2007 9:15 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by hudson » Tue Oct 16, 2018 7:38 pm

I would be wary about giving advice unless they are excited about receiving it. If you give advice, and things don't work out, it's all your fault.
I'm in their shoes as I do not like stocks. I would skip the advisor and go all CDs or the equivalent. Maybe you could help them get the best CD yields...as there is a learning curve for CDs.

ExitStageLeft
Posts: 973
Joined: Sat Jan 20, 2018 4:02 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by ExitStageLeft » Tue Oct 16, 2018 7:42 pm

Welcome to the forum!
jefscott7 wrote:
Tue Oct 16, 2018 1:06 pm
...
But this is about advice for my father. Age 65, retiring soon with $400k in his 401k, and that’s about it for savings. My mom will work 2-3 more years and also retire with 400k in her 401k. They will also inherent 150-200k in the next 5-10 years. My father will roll his 401k into an IRA and is unsure the way forward.
The combined nest egg is $800k, so they should have no problems meeting their expense needs. A 4% initial withdrawal yields $32k per year. I agree with the suggestion to do some Roth conversions before taking Social Security.

Tdubs
Posts: 179
Joined: Tue Apr 24, 2018 7:50 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Tdubs » Tue Oct 16, 2018 8:10 pm

ExitStageLeft wrote:
Tue Oct 16, 2018 7:42 pm
Welcome to the forum!
jefscott7 wrote:
Tue Oct 16, 2018 1:06 pm
...
But this is about advice for my father. Age 65, retiring soon with $400k in his 401k, and that’s about it for savings. My mom will work 2-3 more years and also retire with 400k in her 401k. They will also inherent 150-200k in the next 5-10 years. My father will roll his 401k into an IRA and is unsure the way forward.
The combined nest egg is $800k, so they should have no problems meeting their expense needs. A 4% initial withdrawal yields $32k per year. I agree with the suggestion to do some Roth conversions before taking Social Security.
Regarding the Roth conversions. What will their SS income look like? I'd expect they will fall in the 12% bracket. So they should plan on conversions up to the top of the bracket every year. These brackets won't be there forever. Heck, they will likely reset in 7 years or so.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Tue Oct 16, 2018 9:19 pm

Soon2BXProgrammer wrote:
Tue Oct 16, 2018 3:32 pm
the only thing you might be missing is keeping the money in the 401k is an option..

you might want to review the investment choices to make sure there isn't a fund in the plan that you would want that doesn't exist outside of the 401k.

Example; my father has a stable value fund that pays over 4% currently and has a 3% floor guaranteed. its basically free lunch.
Thanks, I will check if it has to leave the 401k. Are there advantages to leaving it in the 401k other than not dealing with the hassle of rolling over to an IRA? My general assumption is that whatever the funds in the 401k, they are unlikely to be as low as a vanguard admiral shares or something similar...
Last edited by jefscott7 on Tue Oct 16, 2018 9:33 pm, edited 2 times in total.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Tue Oct 16, 2018 9:30 pm

Watty wrote:
Tue Oct 16, 2018 6:15 pm

Neither of these sounds like an issue for them if they roll the money into an IRA. People sometimes think of a target date fund as being some sort of dumbed down investing for dummies choice that needs to be improved on but in the right situation they are an excellent choice. Unless they have a compelling reason not to use a target date fund, like a 2020 fund, then it could be the best choice for them.
Watty, your thoughts are seriously appreciated. I've also considered recommending the target date fund - my only concern is that as novice investors, a "single" fund may feel strange to them as in lack of diversification. But I may be able to explain to them that wouldn't be the case.
In general, is the only downside to the target date fund a slightly higher expense fee than a homemade 3-fund admiral share porfolio, or am I missing something?
Watty wrote:
Tue Oct 16, 2018 6:15 pm

1) They will be needing to make medicare choices soon. I would highly recommend the book "Medicare for Dummies" despite the title. If you get it from a library make sure that it is the most current edition.
Great, thanks.
Watty wrote:
Tue Oct 16, 2018 6:15 pm

That may be a bit high. $24,000 a year is 6% of their $400K nestegg. While there are all sorts of assumptions and qualifications academic studies suggest that 4% ($16,000 a year) is a more reasonable safe withdrawal rate for a 30 year retirement starting at the age of 65, but that is only a guideline.
Sorry, I wasn't quite clear on my numbers. My mom (retiring in 3 years) and dad (retiring now) will each have about 400k, so 800k in total. This thread is technically for my father as he is retiring first, but in principle I see no reason they shouldn't both follow similar investing strategies. I think at 3.5-4%, they could safely withdrawal 2-2.5k / month combined, no?
[/quote]
Watty wrote:
Tue Oct 16, 2018 6:15 pm
With a 4% safe withdrawal rate that 1% is a quarter of their income each year.
This is exactly how I boiled it down to them. That , and the equivalent amount in monthly dollars.
Last edited by jefscott7 on Tue Oct 16, 2018 9:56 pm, edited 1 time in total.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Tue Oct 16, 2018 9:42 pm

SevenBridgesRoad wrote:
Tue Oct 16, 2018 7:19 pm
You are a good son for trying to steer your father in a better direction.

You're getting some good ideas here. A couple of additional thoughts:

1) I get concerned whenever we essentially talk people into doing something. Your dad considers stocks as gambling. You may be able to talk him into buying an equity fund, but will he really stay the course? I'd suggest you guide him to more reading/learning about why. Reading JL Collins Stock Series for example https://jlcollinsnh.com/stock-series/ . The more he understands the why, the better for him (and you). The "you" part is important. If he does this reluctantly, when stocks inevitably go down will he get upset with you? Will you feel like you bear some responsibility? Guilt? Continued education is important to true buy-in. He's not gambling, he's becoming an owner in thousands of businesses. But he needs to see this as a good thing.
You nailed it. They will absolutely not be upset with me, but I do worry they will secretly always wonder what the financial advisor "expert" would have done differently if there's a bad or flat year. I think for their generation financial advisor still holds the weight as doctor or lawyer, it's hard to break that mindset. I suppose I could suggest more like a 80/20 bond/stock ratio to reduce yearly variance. But in any case I think it's necessary to avoid the 1.5%. My father is the kind of person who will spend 2 weeks preparing the kitchen cabinets so he can save $1,200 bucks in labor when they do the install. When I point out to him that 1.5% on their combined account is $500/ month...forever...his eyes lit up.
Last edited by jefscott7 on Tue Oct 16, 2018 9:52 pm, edited 1 time in total.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Tue Oct 16, 2018 9:49 pm

ExitStageLeft wrote:
Tue Oct 16, 2018 7:42 pm
Welcome to the forum!

The combined nest egg is $800k, so they should have no problems meeting their expense needs. A 4% initial withdrawal yields $32k per year. I agree with the suggestion to do some Roth conversions before taking Social Security.
I haven't thought about this too deeply, but is there a good heuristic on how to think about the pro/cons of doing roth conversions in retirement? Is doing it before SS just a matter of tax efficiency, i.e. convert when income is low as you're in a lower bracket so your IRA withdrawals are protected? Is it still worth it to start doing it after they beging collecting SS?

Another detail - my mother is still working for 2-3 years. Assuming she has maxed out her 401k (up to her employer match), should she be contributing to a Roth for my father (which he does not have, everything has only been into his 401k)?

Soon2BXProgrammer
Posts: 475
Joined: Mon Nov 24, 2014 11:30 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Soon2BXProgrammer » Tue Oct 16, 2018 10:58 pm

jefscott7 wrote:
Tue Oct 16, 2018 9:19 pm
Soon2BXProgrammer wrote:
Tue Oct 16, 2018 3:32 pm
the only thing you might be missing is keeping the money in the 401k is an option..

you might want to review the investment choices to make sure there isn't a fund in the plan that you would want that doesn't exist outside of the 401k.

Example; my father has a stable value fund that pays over 4% currently and has a 3% floor guaranteed. its basically free lunch.
Thanks, I will check if it has to leave the 401k. Are there advantages to leaving it in the 401k other than not dealing with the hassle of rolling over to an IRA? My general assumption is that whatever the funds in the 401k, they are unlikely to be as low as a vanguard admiral shares or something similar...
He shoudln't "have to" leave it in the 401k, but he might "want to"..... I would suggest you post the 401k fund options and their expense ratios to the thread and ask for feedback. More then likely rolling it to an IRA makes the most sense, but not always.

(my 401k has funds that are just as cheap or cheaper than vanguard admiral and a stable value fund that pays decent interest,
the government thrift savings plans expenses are rock bottom, and the TSP has the G fund.
either of these plans would be a reasonable reason to not roll the money out)

MotoTrojan
Posts: 2461
Joined: Wed Feb 01, 2017 8:39 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by MotoTrojan » Tue Oct 16, 2018 11:05 pm

I agree with others: If all invested savings in in an IRA or 401k, a Lifestrategy type fund makes sense. Conservative Growth is the 40/60 I believe and seems appropriate if your parents aren't willing to take on more equity.

User avatar
Watty
Posts: 14338
Joined: Wed Oct 10, 2007 3:55 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Watty » Tue Oct 16, 2018 11:23 pm

jefscott7 wrote:
Tue Oct 16, 2018 9:30 pm
Sorry, I wasn't quite clear on my numbers. My mom (retiring in 3 years) and dad (retiring now) will each have about 400k, so 800k in total. This thread is technically for my father as he is retiring first, but in principle I see no reason they shouldn't both follow similar investing strategies. I think at 3.5-4%, they could safely withdrawal 2-2.5k / month combined, no?
That sounds good. If there is something going on like this is a second marriage and they are keeping their funds separate then that might require some more thought on what happens if one of them dies.

With that combined amount before they start Social Security Roth conversions up to the top of the 12% tax bracket would be worth considering and probably and each choice for at least $100K to give them some diversification of account types.
jefscott7 wrote:
Tue Oct 16, 2018 9:19 pm
Are there advantages to leaving it in the 401k other than not dealing with the hassle of rolling over to an IRA?
It varies by state but in some states a 401k will have better protection if they declare bankruptcy or lose a lawsuit.
jefscott7 wrote:
Tue Oct 16, 2018 9:30 pm
In general, is the only downside to the target date fund a slightly higher expense fee than a homemade 3-fund admiral share porfolio, or am I missing something?
One risk is if you get hit by the proverbial Mack truck then they might have a problem managing their finances with a three fund portfolio.

A huge advantage of using the target date fund is that you could set up a perfectly fine 3 fund portfolio but some a bad market could still leave them down by a significant amount. With a target date fund they might be down the same amount but there would be no awkwardness about wondering if you had screwed up the asset allocation. You might be second guessing yourself as much or more than they would.

One other potential problem is that 20 years from now they may have a much harder time following what is being done with their portfolio if you have to periodically buy and sell investments to make withdrawals and rebalance. It is not uncommon for elderly people to get confused and accuse people of mismanaging their funds(and way too often people do that). If they are in assisted living then and tell a caregiver that you have been mismanaging their funds the nursing home will likely call the state to investigate that. Financial advisors are bad enough but there are even sleezier lawyers that specialize in taking control of elderly people's finances and then charging every sort of fee possible.

It is best to keep it as simple as possible so that anything you have to do with their accounts would be easy to explain and defend.
jefscott7 wrote:
Tue Oct 16, 2018 9:42 pm
I think for their generation financial advisor still holds the weight as doctor or lawyer, it's hard to break that mindset.
One additional problem is that even if they find an advisor that they like and trust and they are willing to pay the high fees then sooner or later that advisor will retire, die, or change jobs and they will need to select a new one. That might be hard to do when they are older and less capable. In that case their account would likely be assigned to a different advisor who specializes in taking over orphan accounts and is very good at generating the fees from those accounts.
jefscott7 wrote:
Tue Oct 16, 2018 9:42 pm
...I do worry they will secretly always wonder what the financial advisor "expert" would have done differently if there's a bad or flat year.
One option is that Vanguard will manage their funds for a 0.3% fee and not put them into expensive investments. They call that their personal advisory service, or PAS. There have been threads about people that have used them. Sometimes that could be worthwhile if someone have a bunch of mutual funds in taxable accounts that will be tricky to untangle and organize. There have been threads about this that you can lookup. My impression is that with all their money in retirement accounts there isn't a lot for them to do for your parents other than to tell them to put it into a three fund portfolio or a target date fund.

If they would be more comfortable with using something like that then one option would be to have your dad use them for a year or two to get things on automatic pilot then to take over managing the account with your help. 0.3% of $400K is $1,200 for the first year which seems like a lot to me.
jefscott7 wrote:
Tue Oct 16, 2018 9:49 pm
I haven't thought about this too deeply, but is there a good heuristic on how to think about the pro/cons of doing roth conversions in retirement? Is doing it before SS just a matter of tax efficiency, i.e. convert when income is low as you're in a lower bracket so your IRA withdrawals are protected? Is it still worth it to start doing it after they beging collecting SS?
See the link in my post on how Social Security is taxes. There an income range where every extra dollar in income causes and additional 85 cents of social security to be taxed. That can almost double your effect tax rate. If you do the Roth conversion before your start Social Security then once your start it if you need $20 you might be able to do something like take $10K from and IRA and $10K from a Roth so that none of your Social Security is taxed.

If one of them survives the other they will the be filing in the much higher single tax brackets so doing Roth conversion early while they are still in a lower tax bracket makes sense.

The 12% marginal tax bracket is also just until 2025(?) unless there are future tax law changes, after that it goes back to 15%.

There can be so many changes that you can't really map out firm plans for the next decade, you just need to look at the Roth conversion each year to see if it makes sense. I would look at this by late November each year when you yearly tax numbers are pretty firm so you have plenty of time to do the Roth conversion.
jefscott7 wrote:
Tue Oct 16, 2018 9:30 pm
My mom (retiring in 3 years) and dad (retiring now) will each have about 400k, so 800k in total.
If your mom does not have good low cost funds in her 401k and she is 59.5 then she may be able to do what is called "an in service non-hardship withdrawal" (Goggle this). Not all companies allow this but if her 401k plan does then she can roll the 401k money out to an IRA with better choices without any tax or penalty. If she ask an HR clerk about this they may be clueless so she may need to keep digging until she finds someone at the 401k company that knows what this is and if the plan allows it. She needs to be sure they don't confuse this with a hardship withdrawal.

jalbert
Posts: 3812
Joined: Fri Apr 10, 2015 12:29 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jalbert » Wed Oct 17, 2018 12:29 am

David Jay wrote:
Tue Oct 16, 2018 5:10 pm
LS Conservative Income is a great choice if he is deathly afraid of the stock market. Only a 20% stock allocation, a 20% drop in the stock market is a 4% drop in asset value.
Reasonable choice, but I’d prefer the extra diversification from the inclusion of TIPS in the bond portfolio of the fund Target Retirement Income, which is 30% stock. He could just roll the 401K to an IRA holding that if he wants a conservative holding. Do the same with mom’s 401K when she retires. Revisit when they receive the expected inheritance.
Risk is not a guarantor of return.

Tdubs
Posts: 179
Joined: Tue Apr 24, 2018 7:50 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Tdubs » Wed Oct 17, 2018 6:31 am

jefscott7 wrote:
Tue Oct 16, 2018 9:49 pm
ExitStageLeft wrote:
Tue Oct 16, 2018 7:42 pm
Welcome to the forum!

The combined nest egg is $800k, so they should have no problems meeting their expense needs. A 4% initial withdrawal yields $32k per year. I agree with the suggestion to do some Roth conversions before taking Social Security.
I haven't thought about this too deeply, but is there a good heuristic on how to think about the pro/cons of doing roth conversions in retirement? Is doing it before SS just a matter of tax efficiency, i.e. convert when income is low as you're in a lower bracket so your IRA withdrawals are protected? Is it still worth it to start doing it after they begin collecting SS?

Another detail - my mother is still working for 2-3 years. Assuming she has maxed out her 401k (up to her employer match), should she be contributing to a Roth for my father (which he does not have, everything has only been into his 401k)?
The Roth conversions are all about taxes. Do them now and even after they start taking SS. They should take whatever is left in their tax bracket and use it to convert traditional to Roth right to the top. For example, if we assume they make $45k in SS, the top of the 12% bracket is up around $104k for a married couple over 65, I think. They should convert up to $104k in taxable income every year--basically $60k. The 12 percent bracket will expire in about 7 years, so it is best to do it now. After that, they will be paying 15% on the same income. So it doesn't matter if your mom works or not (assuming her income is modest), they should convert up to the top of the 12 percent bracket every year.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Wed Oct 17, 2018 12:25 pm

Watty wrote:
Tue Oct 16, 2018 11:23 pm

See the link in my post on how Social Security is taxes. There an income range where every extra dollar in income causes and additional 85 cents of social security to be taxed. That can almost double your effect tax rate. If you do the Roth conversion before your start Social Security then once your start it if you need $20 you might be able to do something like take $10K from and IRA and $10K from a Roth so that none of your Social Security is taxed.
I'm very glad I posted here, almost all of your points (and everyone else's) has made me consider important things. For one , the merits of a single vanguard fund (retirement 2020, LS income, or something similar) seem more obvious now, and solves many potential hazards...simplicity in older age, simplicity if one spouse dies, no rebalancing, less pressure on me to have to recommend the "correct" balance of a 3 or 4-fund homemade, etc.

Hopefully I can pick your brain - or anyone else's - one last time. What are your intuitions on delaying SS until 70 and withdrawing more from 401k to makeup the difference from 65-70? Both my parents are in excellent health, and long history lifespans in both families.

Isn't it the case that the % yearly increase in SS earnings between 65 and 70 is much larger than would be expected on the return of a reasonable vanguard retirement fund? Also, assuming one withdrawals a fixed income each year from, say, age 80 onward, is it almost always more tax efficient to have the largest proportion possible of that come from SS? I realize there are many nuances to consider (other income sources, changing yearly income needs, etc.) but I'd like to just get some general principles in mind.

User avatar
Watty
Posts: 14338
Joined: Wed Oct 10, 2007 3:55 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Watty » Wed Oct 17, 2018 12:42 pm

jefscott7 wrote:
Wed Oct 17, 2018 12:25 pm
Hopefully I can pick your brain - or anyone else's - one last time. What are your intuitions on delaying SS until 70 and withdrawing more from 401k to makeup the difference from 65-70? Both my parents are in excellent health, and long history lifespans in both families.
What did the link in my first post suggest?

You can also compare that to an alternative strategy on the same web page.

You really need to crunch the numbers and not go by intuition since the numbers can work out a lot of different ways depending on their age difference, earnings history, and taxes.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Wed Oct 17, 2018 1:00 pm

Watty wrote:
Wed Oct 17, 2018 12:42 pm

You really need to crunch the numbers and not go by intuition since the numbers can work out a lot of different ways depending on their age difference, earnings history, and taxes.
Probably I should have something like "understanding" instead of intuition. But I still take your point about doing the math, and will look more closely at the link.

much appreciated.

delamer
Posts: 6263
Joined: Tue Feb 08, 2011 6:13 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by delamer » Wed Oct 17, 2018 1:04 pm

jefscott7 wrote:
Tue Oct 16, 2018 9:42 pm
SevenBridgesRoad wrote:
Tue Oct 16, 2018 7:19 pm
You are a good son for trying to steer your father in a better direction.

You're getting some good ideas here. A couple of additional thoughts:

1) I get concerned whenever we essentially talk people into doing something. Your dad considers stocks as gambling. You may be able to talk him into buying an equity fund, but will he really stay the course? I'd suggest you guide him to more reading/learning about why. Reading JL Collins Stock Series for example https://jlcollinsnh.com/stock-series/ . The more he understands the why, the better for him (and you). The "you" part is important. If he does this reluctantly, when stocks inevitably go down will he get upset with you? Will you feel like you bear some responsibility? Guilt? Continued education is important to true buy-in. He's not gambling, he's becoming an owner in thousands of businesses. But he needs to see this as a good thing.
You nailed it. They will absolutely not be upset with me, but I do worry they will secretly always wonder what the financial advisor "expert" would have done differently if there's a bad or flat year. I think for their generation financial advisor still holds the weight as doctor or lawyer, it's hard to break that mindset. I suppose I could suggest more like a 80/20 bond/stock ratio to reduce yearly variance. But in any case I think it's necessary to avoid the 1.5%. My father is the kind of person who will spend 2 weeks preparing the kitchen cabinets so he can save $1,200 bucks in labor when they do the install. When I point out to him that 1.5% on their combined account is $500/ month...forever...his eyes lit up.
A lot of the people you are getting advise from here are in your parents’ generation, me included. Bogleheads in general are disdainful of financial advisors, so I wouldn’t generalize about age-based attitudes. It has a lot more to do with willingness to become informed than age.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Wed Oct 17, 2018 2:39 pm

delamer wrote:
Wed Oct 17, 2018 1:04 pm

A lot of the people you are getting advise from here are in your parents’ generation, me included. Bogleheads in general are disdainful of financial advisors, so I wouldn’t generalize about age-based attitudes. It has a lot more to do with willingness to become informed than age.
I wouldn't suspect it has anything to do with age per se, but different conditions and opportunities available to different generations. It's my impression that low cost index funds have only recently become more mainstream, and were not mainstream for most of my parents' life. Financial advisors have been, however. I would also push back against the framing that it's "more about a willingness to become informed", as this attitude doesn't capture the situation of many smart people, like my father, who is incredibly smart and well-informed on many things. For Instance, he spends his spare time reading primary science literature as a hobby. I think it's very easy for smart people, let alone those with little statistical grounding, not to realize how little (or no) value financial advisors are adding for how much they take. Perhaps this is just a way to reframe how deep the problem is with all these fees.

Not that there won't be a role for some personal responsibility and everyone just catching on to better practices like low-cost index funds, etc...But I suspect the willingness-to-learn framing alone won't be a highly productive or empathetic approach towards making progress on the problem. My guess is that strong progress looks more regulatory, like really robust fiduciary rules...but maybe that's just my bias. Would love to see data on the effects of the Obama fiduciary rules, probably they are out there somewhere.

I also suspect bogleheads forums selects for a fairly non-representative sample of the population, where as my parents would be far more representative of their demographic. I could be wrong though... would be an interesting social science project to get some hard data on generational attitudes towards traditional financial institutions and financial advisors.

In any case, all the advice you're posted here has been much appreciated and taken seriously!
Last edited by jefscott7 on Wed Oct 17, 2018 8:46 pm, edited 1 time in total.

Tdubs
Posts: 179
Joined: Tue Apr 24, 2018 7:50 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Tdubs » Wed Oct 17, 2018 3:42 pm

jefscott7 wrote:
Wed Oct 17, 2018 12:25 pm
Watty wrote:
Tue Oct 16, 2018 11:23 pm

See the link in my post on how Social Security is taxes. There an income range where every extra dollar in income causes and additional 85 cents of social security to be taxed. That can almost double your effect tax rate. If you do the Roth conversion before your start Social Security then once your start it if you need $20 you might be able to do something like take $10K from and IRA and $10K from a Roth so that none of your Social Security is taxed.
I'm very glad I posted here, almost all of your points (and everyone else's) has made me consider important things. For one , the merits of a single vanguard fund (retirement 2020, LS income, or something similar) seem more obvious now, and solves many potential hazards...simplicity in older age, simplicity if one spouse dies, no rebalancing, less pressure on me to have to recommend the "correct" balance of a 3 or 4-fund homemade, etc.

Hopefully I can pick your brain - or anyone else's - one last time. What are your intuitions on delaying SS until 70 and withdrawing more from 401k to makeup the difference from 65-70? Both my parents are in excellent health, and long history lifespans in both families.

Isn't it the case that the % yearly increase in SS earnings between 65 and 70 is much larger than would be expected on the return of a reasonable vanguard retirement fund? Also, assuming one withdrawals a fixed income each year from, say, age 80 onward, is it almost always more tax efficient to have the largest proportion possible of that come from SS? I realize there are many nuances to consider (other income sources, changing yearly income needs, etc.) but I'd like to just get some general principles in mind.
Remember one thing about delaying till 70. You can decide to wait till 70 and then have the opportunity to change your mind 60 times. In any month between 65 and 70, they can say, "Screw it, the market is tanking, we are drawing too much from savings. Time to file." It is easy to change plans and file, it is harder to undo it.

User avatar
Watty
Posts: 14338
Joined: Wed Oct 10, 2007 3:55 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by Watty » Wed Oct 17, 2018 4:29 pm

jefscott7 wrote:
Wed Oct 17, 2018 1:00 pm
Watty wrote:
Wed Oct 17, 2018 12:42 pm

You really need to crunch the numbers and not go by intuition since the numbers can work out a lot of different ways depending on their age difference, earnings history, and taxes.
Probably I should have something like "understanding" instead of intuition. But I still take your point about doing the math, and will look more closely at the link.

much appreciated.
The Social security web site has lots of information and it is likely that your dad received booklet in the mail from them.

https://www.ssa.gov/ssi/text-understanding-ssi.htm

The guy that created the web site I mentioned has written a series of books where he explains the basics of a topic in 100 pages. He has one on Social Security that you can read in a couple of hours since you can skip some sections on special situations that would likely not apply to your parents.

https://www.amazon.com/Social-Security- ... mike+piper

jefscott7 wrote:
Wed Oct 17, 2018 2:39 pm
I would also push back against the framing that it's "more about a willingness to become informed", as this attitude doesn't capture the situation of many smart people, like my father, who is incredibly smart and well-informed on many things. For Instance, he spends his spare time reading primary science literature as a hobby. I think it's very easy for smart people, let alone those with little statistical grounding, not to realize how little (or no) value financial advisors are adding for how much they take. Perhaps this is just a way to reframe how deep the problem is with all these fees.
There is some truth to the stereotype that doctors are bad investors since they may have a tendency to think that since they are smart that they should be able to invest better than average.

You might get your parents one of the Boglehead books and encourage them to do their own posts here. Even if you give them a lot of direction in their investing that would help then understand why you are making your suggestions.

https://www.amazon.com/s/ref=nb_sb_noss ... bogleheads+

User avatar
BL
Posts: 8343
Joined: Sun Mar 01, 2009 2:28 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by BL » Wed Oct 17, 2018 5:39 pm

Another good retirement reference:
How to Make Your Money Last: The Indispensable Retirement GuideJan 10, 2017
by Jane Bryant Quinn

delamer
Posts: 6263
Joined: Tue Feb 08, 2011 6:13 pm

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by delamer » Wed Oct 17, 2018 6:20 pm

jefscott7 wrote:
Wed Oct 17, 2018 2:39 pm
delamer wrote:
Wed Oct 17, 2018 1:04 pm

A lot of the people you are getting advise from here are in your parents’ generation, me included. Bogleheads in general are disdainful of financial advisors, so I wouldn’t generalize about age-based attitudes. It has a lot more to do with willingness to become informed than age.
I wouldn't suspect it has anything to do with age per se, but different conditions and opportunities available to different generations. It's my impression that low cost index funds have only recently become more mainstream, and were not mainstream for most of my parents' life. Financial advisors have been, however. I would also push back against the framing that it's "more about a willingness to become informed", as this attitude doesn't capture the situation of many smart people, like my father, who is incredibly smart and well-informed on many things. For Instance, he spends his spare time reading primary science literature as a hobby. I think it's very easy for smart people, let alone those with little statistical grounding, not to realize how little (or no) value financial advisors are adding for how much they take. Perhaps this is just a way to reframe how deep the problem is with all these fees.

Not that there won't be a role for some personality responsibility and everyone just catching on to better practices like low-cost index funds, etc...But I suspect the willingness-to-learn framing alone won't be a highly productive or empathetic approach towards making progress on the problem. My guess is that strong progress looks more regulatory, like really robust fiduciary rules...but maybe that's just my bias. Would love to see data on the effects of the Obama fiduciary rules, probably they are out there somewhere.

I also suspect bogleheads forums selects for a fairly non-representative sample of the population, where as my parents would be far more representative of their demographic. I could be wrong though... would be an interesting social science project to get some hard data on generational attitudes towards traditional financial institutions and financial advisors.

In any case, all the advice you're posted here has been much appreciated and taken seriously!
I do not think I implied that a lack of knowledge about personal finance indicates anything about overall intelligence. What it does imply is a lack of interest, which it sounds like it does apply to your father and mother.

It is no different than the fact I don’t read primary science journals as a hobby. I wouldn’t expect someone to judge my intelligence based on my non-interest in doing so. But I’d guess your father’s hobby is just as much of an outlier as my interest in personal finance.

Probably the important point regarding this forum is that smart people who want to become better informed have lots of resources here to help.

User avatar
mhadden1
Posts: 357
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by mhadden1 » Wed Oct 17, 2018 7:46 pm

hudson wrote:
Tue Oct 16, 2018 7:38 pm
I'm in their shoes as I do not like stocks. I would skip the advisor and go all CDs or the equivalent.
But, to my knowledge all of the 4% safe withdrawal work is based on having a substantial percentage of stocks in the AA.
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.

jefscott7
Posts: 9
Joined: Tue Oct 16, 2018 11:59 am

Re: 30 y/o Boglehead student, advice for 65 year old Retiring Father

Post by jefscott7 » Wed Oct 17, 2018 8:12 pm

Watty wrote:
Wed Oct 17, 2018 4:29 pm

The guy that created the web site I mentioned has written a series of books where he explains the basics of a topic in 100 pages. He has one on Social Security that you can read in a couple of hours since you can skip some sections on special situations that would likely not apply to your parents.
Your input and links on SS have been extremely valuable. I don't think they've thought much about optimizing it other than having a "gut feeling" when to take it. I realize optimizing is not always about just the dollar amount, as there are other and possibly competing values to consider, but definitely worth doing the homework on regardless.

Watty wrote:
Wed Oct 17, 2018 4:29 pm

There is some truth to the stereotype that doctors are bad investors since they may have a tendency to think that since they are smart that they should be able to invest better than average.
It's a tough balance... you have the rich or highly educated who think they should do better than everyone ...on the other end you have people like my parents who, despite being very smart, think it's all over their heads. In their case a little understanding, and especially self-confidence, would go a long way. To trust in the numbers as the final reality check instead of being guided by a gut feeling that a financial advisor can do something special. This is why I think one of biggest barriers is trying to break the image of a financial advisor as akin to doctor or lawyer. There is just a fundamental asymmetry there.

At the risk of sounding conspiratorial, my sense is also that so much of the financial industry, products, and language, have been created - either by intention or a natural evolution - to be difficult for many people to follow. It's like, how many different ways, different fees, and under different names are there to sell the same stocks and bonds?

Post Reply