Portfolio for 87yo widowed Mom.

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hicabob
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Portfolio for 87yo widowed Mom.

Post by hicabob » Tue Nov 06, 2018 3:34 pm

My Dad recently passed and my siblings and my Mom have some questions about portfolio allocation.
She and my sister were talking to a Vanguard rep and the rep was horrified at her equity percentage!
My Dad always treated pensions and SS as bonds so he liked heavy equity allocations.

Mom is 87 and in pretty good health for her age and lives independently close to my sister in upstate NY.
Following the suggested format here are her numbers.

Emergency funds : $67500 in checking account
Debt: $1719 credit card - paid off each month
Tax Rate: 22% Federal, 6.65% NY state
State of residence :NY
Age: 87

Desired asset allocation : ????

Current assets:
Taxable: $605,000 in Vanguard S+P 500 fund
Traditional IRA: $450,000 in Vanguard Total Stock Market fund

Income:
Pension 1 $1034
Pension 2 $1595
Pension 3 $270
Social Security $1191

RMD: $34,000 / year = 2833 / month

Total Monthly income $6923

She has excellent health insurance as a beneficiary of NY state retirement with $3400/yr max out of pocket.
She owns a house free and clear worth about $240,000.
Forgot income tax as an expense so that's an additional 1800/month
Expenses are estimated to be $5700 / month + taxes = $7500 / month

It's hard not to agree with the Vanguard rep that she is equity heavy but we would love to hear some boglehead's opinions of the ideal portfolio for her.
Thanks.
Last edited by hicabob on Tue Nov 06, 2018 6:24 pm, edited 2 times in total.

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cheese_breath
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Re: Portfolio for 87yo widowed Mom.

Post by cheese_breath » Tue Nov 06, 2018 3:49 pm

When you say expenses, does that include taxes? If so, she could afford to lose everything and still get by. So my question is... what's the purpose of the portfolio? Is it for herself or her heirs? Some would argue it's not unreasonable for portfolios invested for the heirs to have high equity allocations.
The surest way to know the future is when it becomes the past.

glennherwig
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Re: Portfolio for 87yo widowed Mom.

Post by glennherwig » Tue Nov 06, 2018 3:50 pm

Honestly, if I was in this situation I would do nothing. A large chunk of her assets are in a taxable. This would trigger a tax bill if you sold the s and p fund. If you were to do anything I would buy bonds in the IRA. That seems to be what most people like to do on this forum. But like I said doing nothing might be the best bet. It seems like she is making decent income. If she can just live off that and stay aggressive. Don’t always rush to do something because an advisor or rep says you should do something. I know the reps at vanguard give unbiased opinions but still don’t listen to them. They don’t know what your comfortable risk tolerance is. Only you and your family does at the end of the day.

My two cents.

I hope you and your family are able to work things out.

Glenn

brad.clarkston
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Re: Portfolio for 87yo widowed Mom.

Post by brad.clarkston » Tue Nov 06, 2018 4:00 pm

That's not horrible and in his situation I probably would agree with your dad about pensions/ss == bonds. That's not always true but he wasn't crazy.

I'm not sure I would want to overly complicate it at her age as you and your sister will be running it for her if your not already.
So it's a two fund port? something like:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares

I'm not a fan of the VFIAX family since it's primarily giant chip tech dependent but it's not a killer.
Balancing it to a 3 port or even a 2 port Wellesley/Wellington if you can stomach a managed port wouldn't be bad and the Vanguard guy wouldn't blow chunks as much but I dodn't think you have to do anything.

delamer
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Re: Portfolio for 87yo widowed Mom.

Post by delamer » Tue Nov 06, 2018 4:04 pm

Age should not be the primary determinant of how much equity should be in a retiree’s portfolio.

The degree to which your mother is dependent on her portfolio to cover her expenses is more important.

Assuming the $5700 includes taxes, then your mother needs about $1700 per month from her portfolio— which translates to an annual withdrawal rate of about 1.9%.

The portfolio is probably throwing that off in dividends/capital gains.

There would be nothing wrong with adding some cash/bonds to her allocation. But there is no reason to do so either unless your mother is uncomfortable with the volatility of stocks.

billfromct
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Re: Portfolio for 87yo widowed Mom.

Post by billfromct » Tue Nov 06, 2018 4:13 pm

I would suggest 40% of her IRA be in the Vanguard ST Investment Grade Bond Fund (3.29% SEC yield, average duration 2.7 years); rebalance every year or so.

I would also have any dividend or cap gains distributions sent to the ST Bond Fund & not be reinvested back into the stock fund; a little more security to stabilize her fixed income allocation.

That would give her 5 or so years of RMDs in fixed income so she wouldn't have to sell stocks during a correction or bear market to find her annual RMD.

bill

Broken Man 1999
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Re: Portfolio for 87yo widowed Mom.

Post by Broken Man 1999 » Tue Nov 06, 2018 4:18 pm

Unless the checking account pays decent interest, I would move the $67,500 to Vanguard Federal Money Market fund. Since she is receiving more than she spends each month, and given her assets, she honestly doesn't need an emergency fund via a checking account, and could probably generate a bit more interest in the money market fund.

Though, in general, she is fine with how things are set up now. No pressing need to do anything.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

hicabob
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Re: Portfolio for 87yo widowed Mom.

Post by hicabob » Tue Nov 06, 2018 6:09 pm

Whoops - sis forgot to include income taxes, which my Dad prepaid for this year.
$17,000 total for the year. I will update the original post - this puts her slightly in the red but we were liberal with spending and there is plenty in IRA+taxable for taxes.

Good idea about emergency fund to Vanguard prime money market.

My siblings and I want her to use her money with abandon and not save it for us.

delamer
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Re: Portfolio for 87yo widowed Mom.

Post by delamer » Tue Nov 06, 2018 6:25 pm

hicabob wrote:
Tue Nov 06, 2018 6:09 pm
Whoops - sis forgot to include income taxes, which my Dad prepaid for this year.
$17,000 total for the year. I will update the original post - this puts her slightly in the red but we were liberal with spending and there is plenty in IRA+taxable for taxes.

Good idea about emergency fund to Vanguard prime money market.

My siblings and I want her to use her money with abandon and not save it for us.
Well, that’s another 1.6% or so withdrawal, which means 3.5% total.

Not a problem for someone your mother’s age regardless of her allocation.

michaeljc70
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Re: Portfolio for 87yo widowed Mom.

Post by michaeljc70 » Tue Nov 06, 2018 6:49 pm

There is no way she is going to outlive her money, so I see no problem with keeping things the way they are. If your Mother tracks things closely and would be upset/panic at a big loss in asset prices (stock market drop), then I'd consider lowering it.

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celia
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Re: Portfolio for 87yo widowed Mom.

Post by celia » Tue Nov 06, 2018 7:14 pm

I, too, see nothing wrong with her current holdings, since income is higher than expenses. But if she owns individual stocks, it might make sense to sell some and buy stock mutual funds instead (for diversity).

But also remember that starting next year she will have to file as Single, where each tax bracket is half of what it is for MFJ. If her tax bracket will rise next year, it might make sense to convert this year to the top of the current or 24% bracket. This will slightly minimize the future RMDs.


Edit to add: A monthly income of $7,000 is $84,000 annually (part of which is untaxed SS). Using that as the only income subject to taxes and applying a $24,000 standard deduction for this year (MFJ), puts her in the 22% tax bracket. That tax bracket ends with an AGI of $77,400 + $24,000 standard deduction = $101,400, so she has some room to convert while staying in the same bracket. But I would even consider converting in the 24% bracket, for this year.

Next year when she files as Single, the $84,000 + $12,000 standard deduction gives her $72,000 Taxable Income, putting her in the higher end of the 24% bracket. If her RMDs are increasing each year, her tax bracket will soon increase too.

One thing she needs to watch out for when participating in Medicare, is that there are Medicare surcharges for High Income taxpayers when her MAGI is over $85,000 (Single) or $170,000 (Married).
https://www.ssa.gov/pubs/EN-05-10536.pdf
Last edited by celia on Wed Nov 07, 2018 5:52 pm, edited 1 time in total.

ralph124cf
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Re: Portfolio for 87yo widowed Mom.

Post by ralph124cf » Wed Nov 07, 2018 1:13 pm

$1,800 per month for income taxes sounds excessive for the stated income. Please recheck.

Ralph

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goingup
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Re: Portfolio for 87yo widowed Mom.

Post by goingup » Wed Nov 07, 2018 1:22 pm

She's great, essentially investing for heirs since the income streams cover expenses. If she's not taking dividends from that $605K taxable account, that could provide a little more cash.

I wouldn't do a thing unless she is concerned about something.

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celia
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Re: Portfolio for 87yo widowed Mom.

Post by celia » Wed Nov 07, 2018 4:23 pm

hicabob wrote:
Tue Nov 06, 2018 6:09 pm
My siblings and I want her to use her money with abandon and not save it for us.
I don't know that I'd go to that extreme! Don't you want her to be able to take care of her own expenses should she need 2 or 3 years of Long Term care expenses? It would be financially terrible if she took everyone on a world cruise (to spend it all), then came back with an exotic disease where she could no longer take care of herself. :oops:

You never know what the future holds for you.

But if "wild abandon" seems appropriate, why not a stock-heavy portfolio? See.... you (and siblings) are already implying that one would work for her. She would likely be happier with a stock portfolio than a cruise, at this point.

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