92 year old father - portfolio review - how much "help"?

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Brain
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Joined: Fri May 27, 2016 9:14 am

92 year old father - portfolio review - how much "help"?

Post by Brain » Tue Mar 19, 2019 6:01 pm

My father is 92 years old. He had a heart attack last November and ever since his memory has been noticeably worse. He's even recognized this and asked me to help him with doing his taxes, including the calculation for his 2019 RMD. The first step was to document what all accounts he has and their current balances. I was also curious to see the distribution of taxable/IRA/Roth and the asset allocation. I knew he was pretty good with money, but I also knew he was a little more of a risk-taker than a retiree should be.

Emergency funds: N/A
Debt: none
Tax Filing Status: Single
Tax Rate: 22% Federal, 4.75% State
State of Residence: MD
Age: 92
Desired Asset allocation: Not sure
Desired International allocation: Not sure

He gets about $15k/y from SSA after Medicare. His only major expense is his retirement community's monthly fee of about $3k/m ($36k/y).

Not sure how to describe his emergency fund situation. There's really nothing that he has that could constitute an emergency. He doesn't drive. He's effectively a renter. He has ridiculously good medical coverage; he owed $0 out of pocket for the hospital visit for his heart attack. He's got a lot of money in cash, though, so I guess that counts.

Holdings:

Most of his accounts are at T. Rowe Price, including taxable, an IRA and his Roth. He has a number of individual stocks at a brokerage, mostly in blue chips. All of the accounts with ticker symbols are TRP. The bonds in his IRA are with a different company. He's going to take all of his RMD from that account this year.

Here's the breakdown of where things are:

Formatting: Percent of holdings - Fund Name - Ticker - Expense Ratio - Balance

Taxable
T. Rowe Price - Total $537,209.05
19.25% Capital Appreciation PRWCX 0.71% $256,082.84
0.67% Cash Reserves TSCXX 0.45% $8,901.71
2.23% Emerging Europe TREMX 1.42% $29,647.82
13.99% Equity Income PRFDX 0.65% $186,086.75
4.25% Spectrum Intl PSILX 0.91% $56,489.93

27.21% Stocks $361,877.68

Savings Accounts $163,064.56
1.49% Capital One (savings) $19,869.00
10.18% My Savings Direct (savings) $135,333.77
0.59% Bank of America (checking) $7,861.79

Taxable Total $1,062,151.29

Traditional IRA
T. Rowe Price - Total $183,672.94
2.47% Capital Appreciation PRWCX 0.71% $32,846.90
1.11% Cash Reserves TSCXX 0.45% $14,697.03
0.11% Emerging Europe TREMX 1.42% $1,485.51
3.55% Equity Income PRFDX 0.65% $47,232.22
4.27% Pers Strat Income PRSIX 0.62% $56,829.30
2.3% Spectrum Intl PSILX 0.91% $30,581.98

1.31% Bonds $17,452.24

Tax-deferred total $201,125.18

Roth IRA - T. Rowe Price $66,687.67
0.53% Cash Reserves TSCXX 0.45% $6,993.65
1.63% Equity Income PRFDX 0.65% $21,648.10
1.9% Pers Strat Income PRSIX 0.62% $25,303.41
0.96% Spectrum Intl PSILX 0.91% $12,742.51

Total $1,329,964.14

Unrealized gains/loses:
Capital Appreciation - $54,700
Equity Income - -$1,100
Emerging Europe - -$31,626
Spectrum Intl - -$1,000
Stocks - $175,000

Percentages:
Taxable - 80%
Tax-deferred - 15%
Tax-exempt - 5%

Stocks - 70%
Bonds - 10%
Cash - 20%

International Stocks - 17%
International Bonds - 18%


Questions:

I see three key problems:
- Asset allocation is too heavily weighted towards equities
- Significant amount of money (27% of overall portfolio) is in individual stocks
- High-fee non-index funds

A fourth factor, that the vast majority of his assets are taxable, complicates the ability to do much about the other three issues without incurring significant capital gains taxes.

1. How do we address the issues without incurring significant taxes? I know we can move the funds around in the IRA and Roth with no issue, but they're only 20% of his portfolio.

As long as there's not a crash before he passes, the step-up will resolve all this, but I'm not certain he'll pass before the next crash. He made it this far and survived a 95% blockage in his heart. I hope I got his longevity genes!

2. He's got a lot of cash sitting in the bank (and in his IRA and Roth??). Is it advisable to buy bonds in a taxable account? Would muni/gov't bonds be a good idea?

ExitStageLeft
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Re: 92 year old father - portfolio review - how much "help"?

Post by ExitStageLeft » Tue Mar 19, 2019 6:31 pm

It could take a couple of years to clean up the taxable but given the favorable tax treatment of long term capital gains it can be done in just a few chunks.

You can do some what-if scenarios with your preferred tax prep software. If he keeps his capital gains under $39,375 then those gains will be taxed at 0%.

As to what to buy in taxable, I'd consider a total bond market fund like VBTLX. With your father having such a low tax rate, he's better off sticking with the higher yield of a taxable bond fund.

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CAsage
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Re: 92 year old father - portfolio review - how much "help"?

Post by CAsage » Tue Mar 19, 2019 6:32 pm

Move the Roth to 100% Total Stock index fund (thinking that is the "last" money your Dad will spend, and the most likely to be passed on, so invest for the next generation). Move the Traditional IRA completely to 100% Total Bond; you will be drawing that down heavily with RMD. And you can move IRA funds, as you noted, without any tax consequences. For the taxable, liquidate any asset that has a capital loss, and as much of the capital gain assets as you can to balance those out for net no tax. Don't touch any items with large capital gains; those items are best inherited. In all cases, you should choose super cheap broad index funds at the vendor of your choice, and you can mix domestic/international if you want. Personally, I don't do international bonds but Vanguard is starting to push them.... Simple is always a great goal, but don't touch the big gnarly capital gain items. And for any taxable cash-like things, suggest an tax-free intermediate bond fund. You can chase savings rates across banks, but again, simple is better. Rates are going up, don't let more than 3 months sit in checking. Just my 2 cents worth!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

mariezzz
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Re: 92 year old father - portfolio review - how much "help"?

Post by mariezzz » Tue Mar 19, 2019 6:39 pm

Given his age, I'd say be survive just fine even if the market dropped 25%. Since he's asked you to help with finances, the question is how much do you change vs. respect his past choices.
You know your dad and how much detail he can handle now. Has he given you power of attorney to make decisions for him?
I think your assessment at the bottom of your post is accurate and you could consider starting to make changes.
As comment above mentions, be careful to keep annual capital gains within limit where they won't incur additional taxes.
I think you're correct on the concern about individual stocks, but is there some sentimental reason why your father holds them?
I suspect there are fewer sentimental reasons for the high fee mutual funds, so I'd suggest starting to move those, esp. the ones in the IRAs.
About being weighted too much toward equities: Your father likely won't even go through his non-equity portion in his remaining life so that's less of a consideration.
Too much change may be hard for him so keep that in mind.

VMMXX gets 2.45% currently. Better than savings accounts you list.

HomeStretch
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Re: 92 year old father - portfolio review - how much "help"?

Post by HomeStretch » Tue Mar 19, 2019 8:13 pm

Documenting your dad’s financial accounts and providing tax assistance were good first steps to help your dad with his financial life. It would be good to ask if his will, financial/healthcare power-of-attorneys and beneficiary designations for accounts/policies are up-to-date.

How much you change/optimize your dad’s asset allocation/portfolio investments really depends on whether he wants/feels up to making changes. If not, leaving the portfolio “as is” at age 92 would be ok IMO. 30% ($400k) of his portfolio is in fixed income investments which might fund 10 years of living expenses not covered by SS.

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grabiner
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Re: 92 year old father - portfolio review - how much "help"?

Post by grabiner » Tue Mar 19, 2019 8:15 pm

Brain wrote:
Tue Mar 19, 2019 6:01 pm
Tax Rate: 22% Federal, 4.75% State
State of Residence: MD
In MD, you need to include the local tax in this rate as well. In Baltimore and the DC suburbs, the local tax is 3.20%, so the state tax rate should be considered 7.95%.

This makes taking capital gains particularly undesirable, as they will be taxed at 22.95%, but at 0% if he leaves the stock to his heirs.
Taxable
T. Rowe Price - Total $537,209.05
19.25% Capital Appreciation PRWCX 0.71% $256,082.84
0.67% Cash Reserves TSCXX 0.45% $8,901.71
2.23% Emerging Europe TREMX 1.42% $29,647.82
13.99% Equity Income PRFDX 0.65% $186,086.75
4.25% Spectrum Intl PSILX 0.91% $56,489.93
27.21% Stocks $361,877.68
Unrealized gains/loses:
Capital Appreciation - $54,700
Equity Income - -$1,100
Emerging Europe - -$31,626
Spectrum Intl - -$1,000
Stocks - $175,000
If the gains in Spectrum International and Equity-Income are actually that low (which wouldn't be surprising; those funds distribute a lot in capital gains), then you can sell them.

Assuming that the individual stocks are well-diversified, you might as well leave them intact, as they don't incur costs; let him leave them to his heirs.

If he is charitably inclined, he would be best off donating his RMDs to charity as Qualified Charitable Distributions, as this avoids the 29.95% tax.
2. He's got a lot of cash sitting in the bank (and in his IRA and Roth??). Is it advisable to buy bonds in a taxable account? Would muni/gov't bonds be a good idea?
Bonds are best in the IRA. The reason is that his tax cost for continuing to hold stocks is very low; the dividends will be taxed, but any capital gains will never be taxed.

In a 22% bracket, I wouldn't recommend munis. T. Rowe Price does have a MD fund, but the extra cost compared to Vanguard's national muni funds is more than the tax savings. If he does hold bonds in his taxable account, Treasury bonds are exempt from the high MD state tax.
Wiki David Grabiner

RetiredCSProf
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Re: 92 year old father - portfolio review - how much "help"?

Post by RetiredCSProf » Tue Mar 19, 2019 8:16 pm

Your father has enough invested in TRowe (>$250K) to be considered eligible for their private advisory services. I would schedule a phone consult with them -- you may find it useful even if you choose not to follow their recommendations. They also offer a few perks, such as $40 off TurboTax.

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dodecahedron
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Re: 92 year old father - portfolio review - how much "help"?

Post by dodecahedron » Tue Mar 19, 2019 8:26 pm

You said he asked you for help with preparing his taxes and computing his RMD.

You did not say he asked you for help with his investments. Unless he does, I would leave well enough alone. He might well have put a lot of thought into those choices at some point in the past and he may have some emotional attachment to them.

You said he was ¨taking more risk than a retiree ought to take," but given his very modest needs and very substantial assets relative to those needs, who is to say how much risk he should be taking.

I would focus on just getting his tax return filed, his RMD computed and distributed without completely overhauling his investments (unless that is what he wants.) I do agree that if he is charitably inclined, you could suggest a QCD as part of his RMD.

apple44
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Re: 92 year old father - portfolio review - how much "help"?

Post by apple44 » Tue Mar 19, 2019 8:31 pm

No opinion on asset allocation, since it seems that he’s doing just fine. I would say the most important things now are:
1. Gather all account information. ALL. Including deposit safe box. Ask him to think hard and write down everything.
2. Check what life insurance he has.
3. Check who are the beneficiaries for all accounts including any insurance. It’s very important!
4. Check if he has a will. Is it validly executed? Witnesses and notorized? Does it need to be updated? Who’s the executor? Is it going to be controversial, I.e, would anyone try to contest the will? It’s always better to talk it out with the potential heirs and beneficiaries do everyone knows what would happen.
5. Check the beneficiaries under all the accounts vs. beneficiaries in the will. Try to be consistent. In some states, it’s the underlying instruments that control so if the bank account says beneficiary is A and will says it’s B, it’s A.
6. Make sure he has a medical power of attorney.
7. Talk about funeral plans. Check if he already purchased some arrangements. If he did, you may want to ask the provider details of the plan. There are some nasty stuff the “deathcare industry” does. I’m not kidding. There is healthcare and there is deathcare. You’d better watch out!

Topic Author
Brain
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Joined: Fri May 27, 2016 9:14 am

Re: 92 year old father - portfolio review - how much "help"?

Post by Brain » Tue Mar 19, 2019 9:56 pm

Thank you all for the excellent responses. A lot that I was expecting, but some things I hadn't thought about. Thanks again.

A few notes:

He did not expressly ask me to reconfigure his entire portfolio, no. I wanted to get a sense of what was possible before making any suggestions. As a few people mentioned, making big changes could be counter-productive at this point if it creates more confusion than financial savings. I am sensitive to this.


Some specific answers to apple44's questions:
apple44 wrote:
Tue Mar 19, 2019 8:31 pm
No opinion on asset allocation, since it seems that he’s doing just fine. I would say the most important things now are:
1. Gather all account information. ALL. Including deposit safe box. Ask him to think hard and write down everything.
My dad is a meticulous planner. He writes everything down. Several years ago he put together an "estate planning" document for my siblings and me. He updated it a couple of years ago.
2. Check what life insurance he has.
He has $50k in a whole life policy. $20k cashout.
3. Check who are the beneficiaries for all accounts including any insurance. It’s very important!
He was pretty good at keeping up on this sort of stuff. But I'll be sure to double-check.
4. Check if he has a will. Is it validly executed? Witnesses and notorized? Does it need to be updated? Who’s the executor? Is it going to be controversial, I.e, would anyone try to contest the will? It’s always better to talk it out with the potential heirs and beneficiaries do everyone knows what would happen.
He has a will. I'm the personal representative. There are four beneficiaries (my half-siblings). There is no contention.
5. Check the beneficiaries under all the accounts vs. beneficiaries in the will. Try to be consistent. In some states, it’s the underlying instruments that control so if the bank account says beneficiary is A and will says it’s B, it’s A.
Good point. I'll double-check that too.
6. Make sure he has a medical power of attorney.
He got that along with the will. I am the POC for this, too. It came into play when he was in the hospital. My siblings and I discussed everything, but they all made it clear that they trusted my judgement.
7. Talk about funeral plans. Check if he already purchased some arrangements. If he did, you may want to ask the provider details of the plan. There are some nasty stuff the “deathcare industry” does. I’m not kidding. There is healthcare and there is deathcare. You’d better watch out!
He prepped for his final expenses. He got the total package with the cemetery/funeral home.

NancyABQ
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Re: 92 year old father - portfolio review - how much "help"?

Post by NancyABQ » Tue Mar 19, 2019 10:23 pm

Brain wrote:
Tue Mar 19, 2019 6:01 pm

Unrealized gains/loses:
Capital Appreciation - $54,700
Equity Income - -$1,100
Emerging Europe - -$31,626
Spectrum Intl - -$1,000
Stocks - $175,000
Wait, is that a $31K LOSS in Emerging Europe? If that's the case, then that would be the holding to sell. But, your Dad may not like the idea of "locking in losses". If he is interested in a little adjusting, then I would suggest selling everything with losses, balanced by the equivalent amount of gains, and investing that money in equity Index funds. But I wouldn't push it if he isn't interested in any tinkering.

I also liked a previous poster's idea of putting 100% bond index in the Traditional IRA, and 100% equity index in the Roth IRA. Again, only if your father is interested in making some adjustments.

And if he is interested in just a little bit of tinkering, suggest that he quit reinvesting dividends in the various taxable accounts and use those dividends for cash-flow, assuming he isn't doing that already. If there is extra money from that, it could be invested in an index fund.

Ultimately, I think your Dad is just fine to leave his portfolio alone. It isn't optimal, but it's his money and he will have plenty no matter what.

NxNW
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Re: 92 year old father - portfolio review - how much "help"?

Post by NxNW » Tue Mar 19, 2019 11:45 pm

For what it’s worth his asset allocation may be appropriate if his goal is to transfer wealth to heirs.

delamer
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Re: 92 year old father - portfolio review - how much "help"?

Post by delamer » Wed Mar 20, 2019 2:03 pm

Given that he can comfortably meet his expenses just with the earnings on his portfolio, I would leave his portfolio alone. While the fund fees are higher than I’d like too, I wouldn’t push him to make changes that he might not fully understand.

The high stock allocation for his age is counterbalanced by his high cash allocation. He has very little bond risk. (My portfolio is set up the same way.)

He could just withdraw from his cash for expenses for many years to pay his bills, for that matter.

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