76 year old widowed mother needs investment advice

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
seligsoj
Posts: 45
Joined: Mon Apr 25, 2016 11:44 am

76 year old widowed mother needs investment advice

Post by seligsoj » Fri May 03, 2019 9:35 am

Hey all,
My parents had a traditional relationships where my father handled the finances. Unfortunately, he passed away 7 years ago. My mother, who at that point, had never even used an ATM machine/paid bills online, etc. was given the stressful task of handling the money. As luck would have it, the stock market has done well, and the portfolio grew from about 1.1 to 1.6. million. My mom continues to worry about the money. What would be a good suggestion for her portfolio? I would like to simplify the portfolio and reduce some of the risk with something like a Vanguard life strategy conservative growth fund with 60% in bonds and 40% in stocks. The big question I have is how to move the money into one fund like this and what any tax implications might be? I can't seem to find any professional to answer this that won't charge $5,000 and want to manage the money for her. What other suggestions might you have? She gets around $26,000 from social security and $8000 a year from a small pension. Her $200,000 house is paid off and she has no debts. She lives a relatively simple lifestyle with several low-budget trips a year for domestic and international travel (and spoiling the grand kids). She spends approximately $50,000-$60,000 a year.

Trust: 563,000 in stocks and stock funds that my mom has selected.
Traditional IRA: 182,000 in CDs (ending in 2020)
Fixed Anuity: $250,000 (ending approximately in 2021)
Fidelity Managed Trust: $635,676 in a variety of funds; (295,00 of this figure is in a traditional IRA)
Syncrony CD: $50,000: due in 2020

User avatar
KlingKlang
Posts: 800
Joined: Wed Oct 16, 2013 3:26 pm

Re: 76 year old widowed mother needs investment advice

Post by KlingKlang » Fri May 03, 2019 10:07 am

seligsoj wrote:
Fri May 03, 2019 9:35 am
My mom continues to worry about the money.
It sounds like your mother needs another $26,000 in annual investment income to make up the difference between her SS and pension and her $60,000 expenses. One way to accomplish this is to purchase a SPIA (Single Premium Immediate Annuity). This would guarantee her income for the rest of her life. The cost would be approximately $300,000. You can get more accurate quotes at https://www.immediateannuities.com/

Since your mother is over the age of 70.5 make sure that she is taking her RMDs (Required Minimum Distributions) from her IRAs.

There is no reason to hire a professional to manage her investments unless this is the only way that she will feel comfortable. You will probably have to contact the trusts to find out the procedures for rearranging assets inside of them. Selling assets in taxable accounts may incur capital gains taxes, but these can be kept to zero if gains are limited to $39,375/year (2019).
Last edited by KlingKlang on Fri May 03, 2019 10:15 am, edited 1 time in total.

HomeStretch
Posts: 742
Joined: Thu Dec 27, 2018 3:06 pm

Re: 76 year old widowed mother needs investment advice

Post by HomeStretch » Fri May 03, 2019 10:08 am

Your mom is worried but please reassure her that she is fortunate to have more than enough assets most likely to fund her annual spending that is not covered by social security/pension income and any large lumpy expenses that come her way.

A 40-60 LifeStrategy Fund is a good easy low cost way to preserve her assets.

Is your mom the trustee of the two trusts so she has authority to make changes? Are you named as co-trustee?

One trust is at Fidelity. Where is the second held?

Has your mom updated her estate documents, healthcare directives, account beneficiaries and POAs? Do you have her power-of-attorney for financial matters?

3-20Characters
Posts: 490
Joined: Tue Jun 19, 2018 2:20 pm

Re: 76 year old widowed mother needs investment advice

Post by 3-20Characters » Fri May 03, 2019 10:31 am

If I understand this correctly, she has at least 563,000 (possibly more) in taxable investments subject to cap gains. Figuring out how (or if) to get these funds into a simple portfolio is the trick. There’s not nearly enough information in your post to give advice.

On the bright side, your mom is great shape. Reassure her and proceed with caution. Don’t make drastic changes until you know for sure what to do.

Topic Author
seligsoj
Posts: 45
Joined: Mon Apr 25, 2016 11:44 am

Re: 76 year old widowed mother needs investment advice

Post by seligsoj » Fri May 03, 2019 10:40 am

My mom is the trustee for the trusts and has the authority to make the changes. Both of the trusts are at fidelity. She has health care directives, updated beneficiaries, a will, and power of attorney for me and my sister if she is incapacitated. She also has long-term care insurance. She is taking the RMDs...as fidelity alerts her when to take them.

Who would be the best person to talk to about how to move the assets into a 60/40 fund without incurring capital gain taxes? Even though all of her money is at fidelity....they don't seem to have anyone that can give her this advice.

carolinaman
Posts: 3691
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: 76 year old widowed mother needs investment advice

Post by carolinaman » Fri May 03, 2019 11:20 am

I suggest she talk with a CPA who can help her develop a strategy for moving funds to the Life Strategy Conservative Growth fund, which I think is an excellent choice for her. She needs to be sure to get a CPA who does this type of work and may want to talk with a few before picking one. Some trusts have high tax rates and may add complexity to this strategy and there may be restrictions on them. A CPA should be able to advise her on all of that.

If she gets all of her money in the LS fund and CDs or like investments, she does not need an ongoing adviser. If she does need advice, an hourly CFP would be appropriate. However, be very cautious with these advisers as many advisers tout themselves this way but are looking for ways to get fees from their work.

ZWorkLess
Posts: 45
Joined: Thu May 04, 2017 8:13 pm

Re: 76 year old widowed mother needs investment advice

Post by ZWorkLess » Fri May 03, 2019 3:43 pm

FWIW, I'd look closely at the estate implications of moving funds as well, as it's reasonably likely your mom will leave much of her estate to her heirs since she is living frugally.

I'd consult an Eldercare attorney / estate planning attorney before making major moves. She's got plenty of money to afford good advice, and having good advice would reduce the stress for you and for her. So, I'd hire a really good (fee only, no percentage) financial planner and/or CPA and/or estate attorney to review and advise.

I'm not a CPA or a lawyer, so this is just based on my personal experiences and may be wrong (someone correct me if I'm off base) . . .

But, my wild guess would be that it might be wise to avoid selling taxable account stocks that have lots of gains and to plan to leave those ones for inheritance (or last use), as when they are inherited, you get a stepped up basis (I.e., She bought the stock for 100, is selling for 500, she'd have to pay tax on the 400 in gains. But, if she passes those stocks to you, you get a stepped up basis of 500, so you could sell them tax free.) If you have the right person helping you figure it out, she might want to sell some portion of those appreciated investments each year based on her personal tax situation.

Just another consideration . . .

RetiredCSProf
Posts: 262
Joined: Tue Feb 28, 2017 4:59 pm

Re: 76 year old widowed mother needs investment advice

Post by RetiredCSProf » Fri May 03, 2019 5:31 pm

It sounds like your Mom's priority is to receive a fixed amount of money at regular intervals, so keep that in mind before making any changes.

You may need some tax advice on determining the potential capital gain of selling a portion of her portfolio. I'm not a CPA, but this is my understanding of the tax rules:
  • The FMV of the taxable portion of the portfolio depends on whether the portfolio was held jointly or if your parents were residents of a community property state when your father passed away. If the taxable portfolio is community property, then your mother's cost basis would have 100% step up basis to the FMV at the time of your father's passing.

    Withdrawals from traditional IRAs are treated as ordinary income, not CG, and thus, the cost basis for these accounts is irrelevant with regard to income taxes. Edited to add the caveat that there is a basis if any contributions to the tIRA were non-deductible.

    There are several options for a widow(er) to roll over an inherited traditional IRA into another traditional IRA account -- without creating a taxable event.

Topic Author
seligsoj
Posts: 45
Joined: Mon Apr 25, 2016 11:44 am

Re: 76 year old widowed mother needs investment advice

Post by seligsoj » Sat May 04, 2019 11:20 am

Thanks all for your responses...some pps pointed out issues I hadn't even considered...we will seek out someone reputable to help us figure this out

Shallowpockets
Posts: 1186
Joined: Fri Nov 20, 2015 10:26 am

Re: 76 year old widowed mother needs investment advice

Post by Shallowpockets » Sat May 04, 2019 11:58 am

Your mother sounds like a worrier, no matter what. Some people are like that. Here's the truth. She has had her money at 1.1m 7 years ago and it has grown to 1.6 million. Almost 50% return. If she cannot see that that is very good and thinks she must do better than that is the worrier part of it.
Another fact is that despite all her expenses through those years she is well ahead.
She does not need investing advice. She needs to realize how fortunate she is.

User avatar
Watty
Posts: 16448
Joined: Wed Oct 10, 2007 3:55 pm

Re: 76 year old widowed mother needs investment advice

Post by Watty » Sat May 04, 2019 12:18 pm

seligsoj wrote:
Fri May 03, 2019 9:35 am
I would like to simplify the portfolio and reduce some of the risk with something like a Vanguard life strategy conservative growth fund with 60% in bonds and 40% in stocks. The big question I have is how to move the money into one fund like this and what any tax implications might be?
The first thing to do is to set any of the current investments to not automatically reinvest dividends.

If the dividends and interest on the CDs are around 2% that will almost be enough to cover the rest of her expenses.

To see the impact of changing investments you can do dummy tax returns, including state taxes, using tax software to see the impact of possible changes. This will be using last years software so it will be approximate but it should be good enough to see any major problems.

The trusts will complicate that and with those I would suspect that she already has an accountant who does her taxes. If so the account should be able to answer the "what if" questions for a modest cost but they likely will not suggest investments.

Also check to see if any additional capital gains will cause her to pay IRMAA taxes on her Medicare.

If she has more than 5% of her portfolio in any one stock then she should consider selling enough of that to get down to 5% even if she has some additional taxes to pay.

User avatar
Cheez-It Guy
Posts: 47
Joined: Sun Mar 03, 2019 4:20 pm

Re: 76 year old widowed mother needs investment advice

Post by Cheez-It Guy » Sat May 04, 2019 1:03 pm

KlingKlang wrote:
Fri May 03, 2019 10:07 am
seligsoj wrote:
Fri May 03, 2019 9:35 am
My mom continues to worry about the money.
It sounds like your mother needs another $26,000 in annual investment income to make up the difference between her SS and pension and her $60,000 expenses. One way to accomplish this is to purchase a SPIA (Single Premium Immediate Annuity). This would guarantee her income for the rest of her life. The cost would be approximately $300,000. You can get more accurate quotes at https://www.immediateannuities.com/

Since your mother is over the age of 70.5 make sure that she is taking her RMDs (Required Minimum Distributions) from her IRAs.

There is no reason to hire a professional to manage her investments unless this is the only way that she will feel comfortable. You will probably have to contact the trusts to find out the procedures for rearranging assets inside of them. Selling assets in taxable accounts may incur capital gains taxes, but these can be kept to zero if gains are limited to $39,375/year (2019).
Is this correct regarding long term capital gains (LTCG)? It was my understanding that total taxable income had to be below that threshold (filing single) in order to have a 0% capital gains tax rate, not just that the total LTCG be below that threshold. I understand that capital gains use marginal rates as well. That is, some could be at 0% and an excess amount may be taxed at 15%. Please clarify.

User avatar
Abe
Posts: 1944
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: 76 year old widowed mother needs investment advice

Post by Abe » Sat May 04, 2019 1:16 pm

Cheez-It Guy wrote:
Sat May 04, 2019 1:03 pm
KlingKlang wrote:
Fri May 03, 2019 10:07 am
Selling assets in taxable accounts may incur capital gains taxes, but these can be kept to zero if gains are limited to $39,375/year (2019).
Is this correct regarding long term capital gains (LTCG)? It was my understanding that total taxable income had to be below that threshold (filing single) in order to have a 0% capital gains tax rate, not just that the total LTCG be below that threshold. I understand that capital gains use marginal rates as well. That is, some could be at 0% and an excess amount may be taxed at 15%. Please clarify.
I was wondering about that myself. It was my understanding that total taxable income had to be below $39,375 to get 0% cap gain rate. Maybe someone more knowledgeagle in tax matters could chime in.
Slow and steady wins the race.

User avatar
mhadden1
Posts: 695
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 76 year old widowed mother needs investment advice

Post by mhadden1 » Sat May 04, 2019 1:27 pm

Cheez-It Guy wrote:
Sat May 04, 2019 1:03 pm
KlingKlang wrote:
Fri May 03, 2019 10:07 am
seligsoj wrote:
Fri May 03, 2019 9:35 am
My mom continues to worry about the money.
It sounds like your mother needs another $26,000 in annual investment income to make up the difference between her SS and pension and her $60,000 expenses. One way to accomplish this is to purchase a SPIA (Single Premium Immediate Annuity). This would guarantee her income for the rest of her life. The cost would be approximately $300,000. You can get more accurate quotes at https://www.immediateannuities.com/

Since your mother is over the age of 70.5 make sure that she is taking her RMDs (Required Minimum Distributions) from her IRAs.

There is no reason to hire a professional to manage her investments unless this is the only way that she will feel comfortable. You will probably have to contact the trusts to find out the procedures for rearranging assets inside of them. Selling assets in taxable accounts may incur capital gains taxes, but these can be kept to zero if gains are limited to $39,375/year (2019).
Is this correct regarding long term capital gains (LTCG)? It was my understanding that total taxable income had to be below that threshold (filing single) in order to have a 0% capital gains tax rate, not just that the total LTCG be below that threshold. I understand that capital gains use marginal rates as well. That is, some could be at 0% and an excess amount may be taxed at 15%. Please clarify.
LTCG and qualified dividends are taxed at the 0% rate for all that fits into the 12% bracket. With your mother's 8k pension and 26k of SS (85% or less of this is taxable), and after the 12k standard deduction, she probably has some space in the 12% bracket, below $39475, to get the 0% rate.

It would likely be appropriate to run some scenarios with tax software or pencil/paper to figure out all the nuances.
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.

cas
Posts: 618
Joined: Wed Apr 26, 2017 8:41 am

Re: 76 year old widowed mother needs investment advice

Post by cas » Sat May 04, 2019 2:31 pm

Cheez-It Guy wrote:
Sat May 04, 2019 1:03 pm
KlingKlang wrote:
Fri May 03, 2019 10:07 am
seligsoj wrote:
Fri May 03, 2019 9:35 am
My mom continues to worry about the money.
[ . . . ] skip quite a bit [. . .]

Selling assets in taxable accounts may incur capital gains taxes, but these can be kept to zero if gains are limited to $39,375/year (2019).
Is this correct regarding long term capital gains (LTCG)? It was my understanding that total taxable income had to be below that threshold (filing single) in order to have a 0% capital gains tax rate, not just that the total LTCG be below that threshold. I understand that capital gains use marginal rates as well. That is, some could be at 0% and an excess amount may be taxed at 15%. Please clarify.
KlingKlang's statement about LTCG taxation (previously bolded) is either a typo or wrong. (What he actually wrote is a common misunderstanding. But it could also just be a typo where he meant to say "taxable income" rather than "gains".)

For definitive proof of this see:
- "Qualified Dividend and Long Term Capital Gains Worksheet" of the IRS 1040

For explanation with graphics that many boglehead's have reported useful see:

-https://thefinancebuff.com/reset-cost-b ... gains.html (scroll down to bar chart)

- Michael Kitces,"Mechanics of the 0% Long-Term Capital Gains Rate", November 2014, https://www.kitces.com/blog/understandi ... -in-basis/ (scroll down and read the examples)

Note: both the above articles were written before the new tax law. The important concepts are still valid. Some of the details are now different (e.g. different thresholds, no personal exemptions, 15% tax bracket for ordinary income is now 12%, etc.)
Last edited by cas on Sat May 04, 2019 2:32 pm, edited 1 time in total.

inbox788
Posts: 6393
Joined: Thu Mar 15, 2012 5:24 pm

Re: 76 year old widowed mother needs investment advice

Post by inbox788 » Sat May 04, 2019 2:31 pm

seligsoj wrote:
Fri May 03, 2019 9:35 am
Trust: 563,000 in stocks and stock funds that my mom has selected.
Traditional IRA: 182,000 in CDs (ending in 2020)
Fixed Anuity: $250,000 (ending approximately in 2021)
Fidelity Managed Trust: $635,676 in a variety of funds; (295,00 of this figure is in a traditional IRA)
Syncrony CD: $50,000: due in 2020
You're getting good advice here (RMD, tax planning, etc.), and if you can find a reasonable professional for advice, that would be great, but a vast majority are going to want a high fee and/or AUM percentage, so watch out.

IMO, an account this size doesn't need to be complicated. $1.6M/25=64k/year, so if you were to move that whole account into cash (no, don't do that), she'd be set for a quarter century. She should have no worries.

What is this Fixed annuity? Is it producing income now and stopping in 2021 or starting income stream in 2021? How much? And can she cash it out? What are the rates and terms? All helpful to decide if any changes should be made, or simply continue it and count it. I'll assume it's a deferred annuity starting in 2021, so it should generate $2k/month for life. Add that to the $8k pension and $26k SS and you have about $36k/month against the $50-60k budget and you only need $14-24k more.
KlingKlang wrote:
Fri May 03, 2019 10:07 am
It sounds like your mother needs another $26,000 in annual investment income to make up the difference between her SS and pension and her $60,000 expenses. One way to accomplish this is to purchase a SPIA (Single Premium Immediate Annuity). This would guarantee her income for the rest of her life. The cost would be approximately $300,000. You can get more accurate quotes at https://www.immediateannuities.com/
Good idea and this should resolve all her anxieties if she needs, but it's not necessary and IMO better if it can be avoided or delayed (it's insurance and some people just need it for peace of mind).

Then you can get to work on the trusts and figuring out if they're worth keeping around. What's the purpose of the trusts? Is it just the 2 you mentioned? Which trust is the home under? Is there other property? And who is or are the successor trustees and beneficiaries? Can they be dissolved? Figure out if you're trying to grow a trust, close out a trust, or slowly drain a trust in a tax efficient manner. In any case, you probably need to tax manage the trust. Mentally, is the trust a source of security or anxiety? That might be the driving force for what to do. My strategy is simplicity first, so if there isn't a compelling reason for having an account, eliminate it and the same would apply to the trusts.

https://www.fidelity.com/managed-accoun ... t-services

And besides estate planning, don't forget about living wills, health directives, and power of attorney preparation. It would be great to find an an affordable professional that could manage all these things for you, but it's a lot of responsibility, expertise and work and not something easily outsourced. One needs to be informed, and that's the most difficult part and decision aren't something someone else can do for you.
Last edited by inbox788 on Sat May 04, 2019 2:43 pm, edited 1 time in total.

cas
Posts: 618
Joined: Wed Apr 26, 2017 8:41 am

Re: 76 year old widowed mother needs investment advice

Post by cas » Sat May 04, 2019 2:42 pm

mhadden1 wrote:
Sat May 04, 2019 1:27 pm
LTCG and qualified dividends are taxed at the 0% rate for all that fits into the 12% bracket. With your mother's 8k pension and 26k of SS (85% or less of this is taxable), and after the 12k standard deduction, she probably has some space in the 12% bracket, below $39475, to get the 0% rate.
Except ... there is a lot missing in what the OP wrote.

There are RMDs from the IRAs that aren't mentioned.

There are significant amounts of interest and qualified dividends from the taxable accounts that aren't mentioned.

I suspect that her taxable income is already well out of the 0% LTCG range. But no way for us out in cyberspace to really know.

User avatar
KlingKlang
Posts: 800
Joined: Wed Oct 16, 2013 3:26 pm

Re: 76 year old widowed mother needs investment advice

Post by KlingKlang » Sun May 05, 2019 9:49 am

cas wrote:
Sat May 04, 2019 2:31 pm
KlingKlang's statement about LTCG taxation (previously bolded) is either a typo or wrong. (What he actually wrote is a common misunderstanding. But it could also just be a typo where he meant to say "taxable income" rather than "gains".)
Sorry about that. That's what I get for copying text from another site with my brain in neutral. :(

Dottie57
Posts: 6325
Joined: Thu May 19, 2016 5:43 pm

Re: 76 year old widowed mother needs investment advice

Post by Dottie57 » Sun May 05, 2019 10:05 am

seligsoj wrote:
Fri May 03, 2019 10:40 am
My mom is the trustee for the trusts and has the authority to make the changes. Both of the trusts are at fidelity. She has health care directives, updated beneficiaries, a will, and power of attorney for me and my sister if she is incapacitated. She also has long-term care insurance. She is taking the RMDs...as fidelity alerts her when to take them.

Who would be the best person to talk to about how to move the assets into a 60/40 fund without incurring capital gain taxes? Even though all of her money is at fidelity....they don't seem to have anyone that can give her this advice.
Really think about the single premium immediate annuity suggested above. It will give her a nice paycheck and should help stop the worrying.

inbox788
Posts: 6393
Joined: Thu Mar 15, 2012 5:24 pm

Re: 76 year old widowed mother needs investment advice

Post by inbox788 » Sun May 05, 2019 12:50 pm

Dottie57 wrote:
Sun May 05, 2019 10:05 am
seligsoj wrote:
Fri May 03, 2019 10:40 am
My mom is the trustee for the trusts and has the authority to make the changes. Both of the trusts are at fidelity. She has health care directives, updated beneficiaries, a will, and power of attorney for me and my sister if she is incapacitated. She also has long-term care insurance. She is taking the RMDs...as fidelity alerts her when to take them.

Who would be the best person to talk to about how to move the assets into a 60/40 fund without incurring capital gain taxes? Even though all of her money is at fidelity....they don't seem to have anyone that can give her this advice.
Really think about the single premium immediate annuity suggested above. It will give her a nice paycheck and should help stop the worrying.
How much was her RMD last year? Is it going up or down? That's a nice paycheck if you think about it that way.

Seems like she has most of her affairs in order. Keep an eye on those LTC premiums.

As far as cleaning up the the trust investments, how many individual holdings are you dealing with? If they're in tax advantaged accounts, there shouldn't be a tax consequence to making allocation changes, so it's mainly the taxable holdings. What is the gross percentage gains in the taxable accounts?

Post Reply