Setting Up A Parent For Retirement

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Topic Author
JJP88
Posts: 35
Joined: Sun Apr 22, 2018 4:41 pm

Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 5:48 pm

Apart from getting my own investments straightened out this year, I also am trying to help my mother (age 63) get her affairs in order.

Here are basics of what she has to work with:
$750,000 currently held in high yield checking accounts.

$1900 a month SS (drawing on my fathers). She was in need of the income so she started drawing in September of last year. Have been told by her that if she gives back everything she recieved, she can draw on herself ($900). Then when she turns 66.5 can draw $2350 from my father’s SS.

Problem here is that of that $1900, my mom sends $1000 of it to my little sister who is in college (is set to graduate end of summer/fall). I know there will be no budging on this issue, my mom is determined to get my sister theough college. So one of the questions I have is paying the money back into SS worth getting the bigger allowance later worth it? Especially since that means giving her money out of the cash accounts.

My mom lives with my 90 year old grandmother and will until the day my grandmother passes (doctor says she cannot be left alone for extended periods of time) or needs to be put into a nursing home. Right now she seems to be in decent enough health for someone who is 90 years old.
If my grandmother’s estate stays as it is, my mother is set to inherit some of the farm ground that will generate $24,000 a year in rental income according to my Uncle who farms it now.

She owns 24 acres of property that her and my father bought for approximately $135,000 12 years ago. They made improvements such as adding in a roadway and a 2 acre lake. So I would think this will have appreciated some, but I have no clue by how much. Our current thought process is to sell this off when my grandmother passes to help her purchase a house to live in. It is my understanding she does not have pay capital gains if she puts that money into a house?

What I am primarily interested in right now is helping my mom getting the 750k she has to work with to start working for her. She is completely overwhelmed when at the idea of how to handle that money, and she would prefer to talk to advisor. Problem she wants to go with an advisor who is at least recommended to her by someone she knows. The only person who had a recommendation has somebody at Edward Jones who calls them twice a month on recommended trades to make. Told her the reason he is so involved with his clients is he probably makes money all the transactions he can get people to make.


So my question is how do I best help my mother set herself up to make sure she this money lasts her? On paper it seems she is in a really good position because between her SS and drawing 4% from the 750k would give her more than enough in a month to live on for at least 25 years. If you factor in her potential rental income it makes it very easy.

Personally I do not care if I ever see a dime of inheritance, and she wants to use every last bit of it she deserves to. However my mother wants to leave as much possible behind for me and my 3 siblings, and would like the 750k to help her generate money to live on.

I am alreday planning on reading the Guide to Retirement book and have read the Investing one. What probably needs to happen is she does need to meet with a financial planner, but how do I find someone who will not try to hose her and one she will go to even if it isn’t on somebody’s recommendation?


Thanks for reading this far and for the potential help. I will supply more info if necessary and if I can.

02nz
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Re: Setting Up A Parent For Retirement

Post by 02nz » Sat Jan 12, 2019 6:06 pm

Others more familiar with spousal benefits can advise on Social Security. On investing the $750K, you're right that 1) she should have this money working for her (i.e. invested - the 4% withdrawal rate does NOT work if the money is sitting in a savings account, with inflation eating away at it); and 2) she should stay far, far away from Edward Jones and the like. If she needs advice, pay for a fee-only advisor (e.g., Garrett Planning Network).

I would recommend investing in a three-fund portfolio, perhaps 40% bonds (BND), 40% U.S., stock (VTI), and 20% international stock (VXUS). Vanguard ETFs are very tax-efficient, which is important since this is in a taxable account. This should be easy to manage - perhaps you can help her with an annual or semi-annual withdrawal and re-balance. You can certainly invest the entire amount all at once, but to avoid regret in case of a big decline right after you buy, perhaps DCA in over 6 months or so.

Does she not have anything in tax-advantaged accounts?

I also recommend Jane Bryant Quinn's excellent book, How to Make Your Money Last, which is detailed, accessible, and very BH-ish.

Topic Author
JJP88
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Joined: Sun Apr 22, 2018 4:41 pm

Re: Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 6:18 pm

02nz wrote:
Sat Jan 12, 2019 6:06 pm
Others more familiar with spousal benefits can advise on Social Security. On investing the $750K, you're right that 1) she should have this money working for her (i.e. invested - the 4% withdrawal rate does NOT work if the money is sitting in a savings account); and 2) she should stay far, far away from Edward Jones and the like. If she needs advice, pay for a fee-only advisor (e.g., Garrett Planning Network).

I would recommend investing in a three-fund portfolio, perhaps 40% bonds (BND), 40% U.S., stock (VTI), and 20% international stock (VXUS). Vanguard ETFs are very tax-efficient, which is important since this is in a taxable account. This should be easy to manage - perhaps you can help her with an annual or semi-annual withdrawal and re-balance. You can certainly invest the entire amount all at once, but to avoid regret in case of a big decline right after you buy, perhaps DCA in over 6 months or so.

Does she not have anything in tax-advantaged accounts?

I also recommend Jane Bryant Quinn's excellent book, How to Make Your Money Last, which is detailed, accessible, and very BH-ish.
I said the 4% just in the hypothetical that she could make what she has now last awhile with doing very little.

My mom was a stay at home mother, and hasn’t held a job since before my parents got married. For reasons I rather not discuss there are no investments of any sort.

I have told her that if nothing else we could set her up a fund portfolio easily enough. I would have to learn to handle the workings of a taxable account, many seem to be able to handle their own. Would definitely do a DCA because I know her risk tolerance is extermely low (and she should be conservative give her age), oh that it would be low whether she was 20 or 60.

Thanks for the book recommendation.

02nz
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Re: Setting Up A Parent For Retirement

Post by 02nz » Sat Jan 12, 2019 6:29 pm

For an "extremely low" risk tolerance, perhaps something closer to 30-40% stocks would be better than 60%. You don't want her running to Edward Jones at the next market correction.

increment
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Re: Setting Up A Parent For Retirement

Post by increment » Sat Jan 12, 2019 6:31 pm

JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
It is my understanding she does not have pay capital gains if she puts that money into a house?
This idea doesn't sound familiar to me. Do you have a reference for it?

123
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Re: Setting Up A Parent For Retirement

Post by 123 » Sat Jan 12, 2019 6:33 pm

What is the interest rate your mother is getting on her hi-yield checking accounts? Local brick and mortar banks, incluidng those that are nationally known are often under 0.25% whereas many internet banks pay 2.00% or higher. On $750,000 at a conservative 2.00% that is $15,000 yearly.
The closest helping hand is at the end of your own arm.

02nz
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Re: Setting Up A Parent For Retirement

Post by 02nz » Sat Jan 12, 2019 6:42 pm

increment wrote:
Sat Jan 12, 2019 6:31 pm
JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
It is my understanding she does not have pay capital gains if she puts that money into a house?
This idea doesn't sound familiar to me. Do you have a reference for it?
I think this may be confusing two things. She'll have to pay capital gains taxes upon selling investments that have gained in value. That could be at a zero percent LTCG rate though. As far as owning a house, there's an exemption for $250K of gains from selling your primary residence if you have lived in it a certain amount of time.

02nz
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Re: Setting Up A Parent For Retirement

Post by 02nz » Sat Jan 12, 2019 6:43 pm

123 wrote:
Sat Jan 12, 2019 6:33 pm
What is the interest rate your mother is getting on her hi-yield checking accounts? Local brick and mortar banks, incluidng those that are nationally known are often under 0.25% whereas many internet banks pay 2.00% or higher. On $750,000 at a conservative 2.00% that is $15,000 yearly.
Good point, I missed the word "checking" in the OP. Even "high-yield" checking is very very low. Online savings accounts are much better.

Topic Author
JJP88
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Joined: Sun Apr 22, 2018 4:41 pm

Re: Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 7:04 pm

increment wrote:
Sat Jan 12, 2019 6:31 pm
JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
It is my understanding she does not have pay capital gains if she puts that money into a house?
This idea doesn't sound familiar to me. Do you have a reference for it?

One of the books I have read in the last year champions owning real estate and if you sell that real estate, you can put that money into real estate again and not owe capital gains tax. I was skeptical when I read this, but my Uncle has said that if somebody was interested in buying his farm ground for a potential project he could take what he sold the ground for, and put it back into farm ground and not owe capital gains if held the property for a few years.

Topic Author
JJP88
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Re: Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 7:06 pm

02nz wrote:
Sat Jan 12, 2019 6:43 pm
123 wrote:
Sat Jan 12, 2019 6:33 pm
What is the interest rate your mother is getting on her hi-yield checking accounts? Local brick and mortar banks, incluidng those that are nationally known are often under 0.25% whereas many internet banks pay 2.00% or higher. On $750,000 at a conservative 2.00% that is $15,000 yearly.
Good point, I missed the word "checking" in the OP. Even "high-yield" checking is very very low. Online savings accounts are much better.
Got her in the internet banks and they range in the 2%. She keeps her local brick and mortar for her checking account.

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BL
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Re: Setting Up A Parent For Retirement

Post by BL » Sat Jan 12, 2019 7:30 pm

I believe if she applies for SS before FRA, she will have applied for both her own and spousal SS, and cannot have just one. Perhaps check Mike Piper's book on Social Security, since everything changed just a few years ago and many are confused. She should be eligible for full Survivor's SS if spouse/ex-spouse dies before she does and she has reached FRA (or a reduced amount if younger).

She might be a candidate for a SPIA (single premium immediate annuity) later. Usual recommendation is to wait until age 70 or so. Info here: immediateAnnuities.com
They take a big hunk of money and give you a specific amount for life, no refund.

If grandmother owns the house and your mother inherits it, it may not have any capital gains due to step-up at death. You might want to find out just how the ownership is set up. Why would she need a different house?

She probably wants to support daughter if she has helped other kids or to be sure she is properly "launched".

She does seem to have quite a bit of assets but they seem complicated right now. If she has recently gone through major life changes (death, divorce, etc.) you might want to go easy for a while. Not sure you can 1031 farm land to a home for tax purposes. You are confusing info by not stating if your father is living or not.
Your comment on SS may be half right, depending on whether she is a spouse or survivor.

Jane Bryant Quinn's book, How to Make your money last, would be a good reference to have on hand (I bought one used on Amazon), so she could look up a single topic as it comes up.

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celia
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Re: Setting Up A Parent For Retirement

Post by celia » Sat Jan 12, 2019 7:35 pm

JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
$750,000 currently held in high yield checking accounts.
If this is held in a bank, the interest is piddly, compared to what a money market fund would provide. And if she has more than $250,000 in any one bank, she needs to know that FDIC insurance only covers up to $250,000 per bank. Multiple branches of a bank is still one bank.
If my grandmother’s estate stays as it is, my mother is set to inherit some of the farm ground that will generate $24,000 a year in rental income according to my Uncle who farms it now.
If $24K is her share of rent (AFTER splitting with the uncle), that is quite good for not having to do any of the work. However, for the next generation (her share will be split 4 ways???), it can become problematic since some of her kids may want cash instead of rental land.
She owns 24 acres of property that her and my father bought for approximately $135,000 12 years ago. They made improvements such as adding in a roadway and a 2 acre lake. So I would think this will have appreciated some, but I have no clue by how much. Our current thought process is to sell this off when my grandmother passes to help her purchase a house to live in. It is my understanding she does not have pay capital gains if she puts that money into a house?
Depending on how the title to the land is held, what state the land is in, and if your father died while owning this property, there may have been a step-up in value at the time your father died. If this is her primary residence (live in a house on that land), the first $250,000 of capital gains (when she sells) will be tax-free. If she buys another place to live, the gains can be deferred until the replacement property is sold. If the replacement property is sold after her death, there will be a step-up of value (again) as of her date of death.

It sounds like your mom lives in a rural area. May I suggest she consider buying a condo instead of a house next time (in a town or city)? That way she won't be responsible for the exterior maintenance and she will have neighbors nearby which will help as her health won't always be as good as it is now.

Topic Author
JJP88
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Re: Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 7:57 pm

celia wrote:
Sat Jan 12, 2019 7:35 pm
JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
$750,000 currently held in high yield checking accounts.
If this is held in a bank, the interest is piddly, compared to what a money market fund would provide. And if she has more than $250,000 in any one bank, she needs to know that FDIC insurance only covers up to $250,000 per bank. Multiple branches of a bank is still one bank.
If my grandmother’s estate stays as it is, my mother is set to inherit some of the farm ground that will generate $24,000 a year in rental income according to my Uncle who farms it now.
If $24K is her share of rent (AFTER splitting with the uncle), that is quite good for not having to do any of the work. However, for the next generation (her share will be split 4 ways???), it can become problematic since some of her kids may want cash instead of rental land.
She owns 24 acres of property that her and my father bought for approximately $135,000 12 years ago. They made improvements such as adding in a roadway and a 2 acre lake. So I would think this will have appreciated some, but I have no clue by how much. Our current thought process is to sell this off when my grandmother passes to help her purchase a house to live in. It is my understanding she does not have pay capital gains if she puts that money into a house?
Depending on how the title to the land is held, what state the land is in, and if your father died while owning this property, there may have been a step-up in value at the time your father died. If this is her primary residence (live in a house on that land), the first $250,000 of capital gains (when she sells) will be tax-free. If she buys another place to live, the gains can be deferred until the replacement property is sold. If the replacement property is sold after her death, there will be a step-up of value (again) as of her date of death.

It sounds like your mom lives in a rural area. May I suggest she consider buying a condo instead of a house next time (in a town or city)? That way she won't be responsible for the exterior maintenance and she will have neighbors nearby which will help as her health won't always be as good as it is now.
1. 3 different banking institutions not branches for the savings, is she still only insured for $250,000? Never had need to know this answer.
2. Mom gets a certain amount acreage of the farm, according to my Uncle that $24,00 is what she should be able to generate from renting it out. Most likely my Uncle will help manage this because all the ground belonged to my grandpa at some point, and a portion of that his father before him. As to whether I can keep my siblings from wanting to sell it off after my mother passes is a fight for another day.
3. The 24 acres has no house so I don’t know how it would be classified. Again this was something I have been meaning to research farther, because the sale will be the bulk of what she will put towards a house. Luckily we are in a low cost living area and good house are relatively cheap. Her credit is a mess though, so whatever she get will probably have to be bought outright. Don’t think I can or will be in a position to cosign a mortage because I am about to start looking for me first home.

I would love to get her to get a condo/something easy to manage, but I know when the time comes she will want to have “space” between her and her neighbors. I am staying in the area so for a lot of things I will try to help out with.


5. My mother is not inheriting the house or land surrounding the house. The farm ground is spread around the area.

JoeRetire
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Re: Setting Up A Parent For Retirement

Post by JoeRetire » Sat Jan 12, 2019 8:10 pm

JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
She is completely overwhelmed when at the idea of how to handle that money, and she would prefer to talk to advisor. Problem she wants to go with an advisor who is at least recommended to her by someone she knows.

So my question is how do I best help my mother set herself up to make sure she this money lasts her? On paper it seems she is in a really good position because between her SS and drawing 4% from the 750k would give her more than enough in a month to live on for at least 25 years. If you factor in her potential rental income it makes it very easy.
Since Mom is overwhelmed and knows that she needs an adviser's help, and since you don't seem to have enough knowledge to be that adviser right now, your best bet is to help Mom find a good adviser.

Find a fee-only fiduciary certified financial planner with expertise. With Mom, interview several. Make sure they hear her situation fully - including support of your grandmother and your sister. You haven't mentioned what is up with your father. His situation (if he is still around) should be considered in her planning as well. Have the adviser help her with he Social Security benefit election process quickly. And when the time comes have the adviser run the numbers for the farm property.

BTW, Mom should be planning for more than 25 years - particularly since your grandmother is already 90 and going strong. She's young (younger than me) and has a long life ahead of her.

Topic Author
JJP88
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Re: Setting Up A Parent For Retirement

Post by JJP88 » Sat Jan 12, 2019 8:32 pm

JoeRetire wrote:
Sat Jan 12, 2019 8:10 pm
JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
She is completely overwhelmed when at the idea of how to handle that money, and she would prefer to talk to advisor. Problem she wants to go with an advisor who is at least recommended to her by someone she knows.

So my question is how do I best help my mother set herself up to make sure she this money lasts her? On paper it seems she is in a really good position because between her SS and drawing 4% from the 750k would give her more than enough in a month to live on for at least 25 years. If you factor in her potential rental income it makes it very easy.
Since Mom is overwhelmed and knows that she needs an adviser's help, and since you don't seem to have enough knowledge to be that adviser right now, your best bet is to help Mom find a good adviser.

Find a fee-only fiduciary certified financial planner with expertise. With Mom, interview several. Make sure they hear her situation fully - including support of your grandmother and your sister. You haven't mentioned what is up with your father. His situation (if he is still around) should be considered in her planning as well. Have the adviser help her with he Social Security benefit election process quickly. And when the time comes have the adviser run the numbers for the farm property.

BTW, Mom should be planning for more than 25 years - particularly since your grandmother is already 90 and going strong. She's young (younger than me) and has a long life ahead of her.
I apologize, I thought I mentioned in my original post father passed away some time ago. For complicated reasons the life insurance payout (the 750k and another amount she kept to pay off accumulated debts).

I have known about needing to find an advisor with an acknowledged fidiuciary responsibilitiy, which is why I kept her from going to the Edward Jones appointment. The trouble is finding such a person and convincing my mother that he is any good, hence her wanting to go with the first recommendation (The responsibility of deciding would be taken off of her. She has low self-esteem and has always had trouble making hard decisions).

I know she needs to be planning for more than 25 years, just wanted to illustrate to her that doing absolutely nothing that she would be okay for awhile. That generating even really conservative returns should be able to make the money last.

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BL
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Re: Setting Up A Parent For Retirement

Post by BL » Sat Jan 12, 2019 9:58 pm

ok, her idea to repay and take hers now with SURVIVOR's SS at her FRA now makes sense. It would be worth checking into and doing it if she is willing to use her money to do this. Having the higher COLA-inflated SS will help in the future.

There is a Boglehead here who recommends an adviser for a modest fee. I can't come up with the name right now. This is probably too complicated for Vanguard PAS since it involves real estate, etc.

JoeRetire
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Re: Setting Up A Parent For Retirement

Post by JoeRetire » Sun Jan 13, 2019 8:23 am

JJP88 wrote:
Sat Jan 12, 2019 8:32 pm
I apologize, I thought I mentioned in my original post father passed away some time ago. For complicated reasons the life insurance payout (the 750k and another amount she kept to pay off accumulated debts).
You, Mom and an adviser should talk about Social Security survivor benefits soon, to help determine a good benefits filing strategy. I suspect she will be better off paying back whatever she has already collected and waiting until her FRA to collect her survivor benefits.
I have known about needing to find an advisor with an acknowledged fidiuciary responsibilitiy, which is why I kept her from going to the Edward Jones appointment. The trouble is finding such a person and convincing my mother that he is any good, hence her wanting to go with the first recommendation
A good adviser will talk with you and Mom as they are interviewed. I agree that Mom needs to feel comfortable that she can trust her adviser - that is key. Hopefully your help and recommendations will carry some weight.
I know she needs to be planning for more than 25 years, just wanted to illustrate to her that doing absolutely nothing that she would be okay for awhile. That generating even really conservative returns should be able to make the money last.
Makes sense.

indexonlyplease
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Re: Setting Up A Parent For Retirement

Post by indexonlyplease » Sun Jan 13, 2019 8:45 am

Call Vanguard and set up a 3 way call with an advisor and both of you. Tell them how much you have to invest and the situation you are in. They will set up a plan for your mom. You can have this done for free. If you decide to go with them they charge .3% of investments.. This is a lot cheaper than any advisor she will meet with. Vanguard has funds for people already in retirement.

You need to decide how much your mom needs monthly to live. Then she can decide how much she needs from the investments. Maybe she needs very little from the investments so she can withdraw very little.

SS from mom and grandmother
rental income
investments

Remember keep it simple for mom. Work on one topic at a time. Investments, house, farm eat. No rush to stress her out.

dknightd
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Re: Setting Up A Parent For Retirement

Post by dknightd » Sun Jan 13, 2019 10:33 am

JJP88 wrote:
Sat Jan 12, 2019 5:48 pm
Apart from getting my own investments straightened out this year, I also am trying to help my mother (age 63) get her affairs in order.

Here are basics of what she has to work with:
$750,000 currently held in high yield checking accounts.

$1900 a month SS (drawing on my fathers). She was in need of the income so she started drawing in September of last year. Have been told by her that if she gives back everything she recieved, she can draw on herself ($900). Then when she turns 66.5 can draw $2350 from my father’s SS.

Problem here is that of that $1900, my mom sends $1000 of it to my little sister who is in college (is set to graduate end of summer/fall). I know there will be no budging on this issue, my mom is determined to get my sister theough college. So one of the questions I have is paying the money back into SS worth getting the bigger allowance later worth it? Especially since that means giving her money out of the cash accounts.

My mom lives with my 90 year old grandmother and will until the day my grandmother passes (doctor says she cannot be left alone for extended periods of time) or needs to be put into a nursing home. Right now she seems to be in decent enough health for someone who is 90 years old.
If my grandmother’s estate stays as it is, my mother is set to inherit some of the farm ground that will generate $24,000 a year in rental income according to my Uncle who farms it now.

She owns 24 acres of property that her and my father bought for approximately $135,000 12 years ago. They made improvements such as adding in a roadway and a 2 acre lake. So I would think this will have appreciated some, but I have no clue by how much. Our current thought process is to sell this off when my grandmother passes to help her purchase a house to live in. It is my understanding she does not have pay capital gains if she puts that money into a house?

What I am primarily interested in right now is helping my mom getting the 750k she has to work with to start working for her. She is completely overwhelmed when at the idea of how to handle that money, and she would prefer to talk to advisor. Problem she wants to go with an advisor who is at least recommended to her by someone she knows. The only person who had a recommendation has somebody at Edward Jones who calls them twice a month on recommended trades to make. Told her the reason he is so involved with his clients is he probably makes money all the transactions he can get people to make.


So my question is how do I best help my mother set herself up to make sure she this money lasts her? On paper it seems she is in a really good position because between her SS and drawing 4% from the 750k would give her more than enough in a month to live on for at least 25 years. If you factor in her potential rental income it makes it very easy.

Personally I do not care if I ever see a dime of inheritance, and she wants to use every last bit of it she deserves to. However my mother wants to leave as much possible behind for me and my 3 siblings, and would like the 750k to help her generate money to live on.

I am alreday planning on reading the Guide to Retirement book and have read the Investing one. What probably needs to happen is she does need to meet with a financial planner, but how do I find someone who will not try to hose her and one she will go to even if it isn’t on somebody’s recommendation?


Thanks for reading this far and for the potential help. I will supply more info if necessary and if I can.
Some random thoughts.

You might combine getting your investments sorted out with getting your mom's sorted out.
Perhaps she was hinting you should pick out a good financial advisor, then recommend them to her?

Do you have any other local siblings? Are they able to help out at all? If so, get them involved. There is a possibility they could misinterpret what you are doing to help your mother. So better to have them in the loop.

If what your mother told you about SS is correct, and it probably is. I'd pay back the money she has received, and claim for the bigger benefit later. That would cost $1000/month for 3 years, then get her $450/month more for life. Seems like a good trade. I'd suggest she make an appointment at the SS office to discuss and confirm this. They can also process the paperwork at the same time. She has the money in the bank, has a family history of longevity, this is likely a very good thing to do.

You mom seems to be in pretty good shape. And does not really need to take much risk. Maybe buy a few CD's to gain a little more interest, while she figures out what to do.

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