Mom-in-law divorced at 67, investment plan advice

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pathdoc
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Mom-in-law divorced at 67, investment plan advice

Post by pathdoc »

My mother-in-law is freshly divorced at 67, and will receive about $400k cash. She has no other assets or retirement accounts.

Her social security is $1k a month. Her living costs with her apartment are probably at least 2.5k a month. (I'm definitely worried that I will be supporting her financially, but that is a different story.) I'm assuming 30k would be set aside for emergencies.

She wants to use a financial advisor to invest the money, but I don't think she should pay for that given her limiting budget. She'll need the money for income. Would you advise simply doing a vanguard index fund investment (e.g. 30% stock, 10% international, 30% bond, 30% inflation protected securities), or maybe an immediate annuity? Or any advice (besides her moving in with me) would be appreciated.
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RickBoglehead
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Re: Mom-in-law divorced at 67, investment plan advice

Post by RickBoglehead »

Without exact numbers, you are guessing. $1,500 needed a month or $18,000 a year is 4.5% of $400k. Should not be very hard to get that as you propose.

Pulling $20k a year is 20 years with zero return.

I would be concerned about future assisted living, etc. and getting an accurate view of her true expenses. $30k a year is very.low.
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PartIrish
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Re: Mom-in-law divorced at 67, investment plan advice

Post by PartIrish »

If your MIL was married for at least 10 years, might her ex-spousal social security benefit be higher than her current benefit?
deikel
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Re: Mom-in-law divorced at 67, investment plan advice

Post by deikel »

SPIA should provide 2k/month, inflation adjusted, for life

4% withdrawel gives you 1300/month

her life expectancy is about 20 yrs more years based an actuarial table, you probably want to calculate 30 yrs to be on the save side, so you are back to 4% safe withdrawel, not sure how healthy she is and if you want to adjust up or down and eat more into principal

need to know her current cost of living to see if one or the other fits
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J G Bankerton
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Re: Mom-in-law divorced at 67, investment plan advice

Post by J G Bankerton »

I never used an advisor but Vanguard's personal advisor gets good reviews. They are a fiduciary.

Personal Advisor Services rocked today!
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willthrill81
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Re: Mom-in-law divorced at 67, investment plan advice

Post by willthrill81 »

I'm concerned by your comment of 'at least $2.5k' per month. Unless she can supplement her income with some work, and a part-time job might be a good all around solution for her, it doesn't seem prudent for her to spend anything more than that, and $2.5k may be beyond the realm of 'reasonably possible'.

The rule of thumb for 30 year retirements is that you can withdraw about 4% of the starting balance annually and adjust that same amount upward each year. In reality, almost everyone draws less when their portfolio drops in value, but 4% is a reasonable working number to start with. This would mean that she would have about $16k annually or $1.33k monthly coming from her portfolio. There are arguably some means of potentially increasing that a bit to perhaps a 4.5% or $1.5k monthly, but how effective such efforts could truly be is debatable.

She needs to cinch down her expenses and find out what she is currently spending right now. Reducing her expenses will very likely be necessary. A part-time job could be good for her finances and mind.

Her entire portfolio is for 'emergency expenses'. I would argue that she may not have the luxury of having significant idle cash on the sidelines unless that's necessary in order for her to invest the rest of her funds, although bonds and high-yield savings accounts are paying similar interest rates at the moment.
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delamer
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Re: Mom-in-law divorced at 67, investment plan advice

Post by delamer »

You are on the right track.

If she annuitized her basic expenses — groceries, rent, utilities, transportation, medical — between her Social Security and purchasing a SPIA , then she could withdraw from the remaining savings for extras like eating out, vacations, clothing, hobbies, etc.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by abuss368 »

Forget the specifics. If the market pulls back (and it will at some point) you do not want to be in a position where she is upset or blaming you.

Call Vanguard and hire their PAS services.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by willthrill81 »

abuss368 wrote: Thu Aug 22, 2019 4:20 pm Forget the specifics. If the market pulls back (and it will at some point) you do not want to be in a position where she is upset or blaming you.
There's a lot of truth in that. I've learned the hard way not to give unsolicited financial advice for that very reason. However, this is a difficult situation for the OP, because if the MiL runs out of money or even if she doesn't, the OP may be put on the hook for helping her financially.

Family can be very good at complicating one's finances and decisions.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Watty
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Re: Mom-in-law divorced at 67, investment plan advice

Post by Watty »

pathdoc wrote: Thu Aug 22, 2019 1:07 pm Her social security is $1k a month. Her living costs with her apartment are probably at least 2.5k a month.
What would a similar condo cost? In some parts of the country you can buy an OK condo for the low $100s.

When things settle down it might make sense for her to buy a condo with her cash which could reduce her expenses each month and if she ever needs to go into assisted living the condo could be sold to help pay for LTC costs.
pathdoc wrote: Thu Aug 22, 2019 1:07 pm She wants to use a financial advisor to invest the money, but I don't think she should pay for that given her limiting budget. She'll need the money for income.
I agree. There are all sorts of assumptions and qualifications but academic studies hove show that in the past someone could start out retirement with around a 4% save withdraw rate and be pretty sure that you would not run out of money. At best an advisor would be charging her a 1% fee and that would need to come out of her spendable money for the year so that would be 25% of her income for the year. In all likelihood any financial advisor would also be using all sorts of ways to charge her more with hidden fees and mutual funds with high expenses.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates
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Re: Mom-in-law divorced at 67, investment plan advice

Post by abuss368 »

Vanguard PAS charges a small .30 fee.

Call Vanguard.
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J G Bankerton
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Re: Mom-in-law divorced at 67, investment plan advice

Post by J G Bankerton »

abuss368 wrote: Thu Aug 22, 2019 4:20 pm Forget the specifics. If the market pulls back (and it will at some point) you do not want to be in a position where she is upset or blaming you.

Call Vanguard and hire their PAS services.
We have a winner. If she follows OP's advice and he portfolio increases she might not even notice. If her portfolio crashes she will blame OP and move in saying you owe her.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by Dottie57 »

PartIrish wrote: Thu Aug 22, 2019 3:24 pm If your MIL was married for at least 10 years, might her ex-spousal social security benefit be higher than her current benefit?

This. Hopefully it could increase SS quite a bit.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by abuss368 »

J G Bankerton wrote: Thu Aug 22, 2019 5:59 pm
abuss368 wrote: Thu Aug 22, 2019 4:20 pm Forget the specifics. If the market pulls back (and it will at some point) you do not want to be in a position where she is upset or blaming you.

Call Vanguard and hire their PAS services.
We have a winner. If she follows OP's advice and he portfolio increases she might not even notice. If her portfolio crashes she will blame OP and move in saying you owe her.
Thanks!
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Re: Mom-in-law divorced at 67, investment plan advice

Post by fru-gal »

Dottie57 wrote: Thu Aug 22, 2019 6:56 pm
PartIrish wrote: Thu Aug 22, 2019 3:24 pm If your MIL was married for at least 10 years, might her ex-spousal social security benefit be higher than her current benefit?

This. Hopefully it could increase SS quite a bit.
Maybe. Also the OP doesn't seem to know exactly what his MIL spends per month, he or she seems to be guessing. Is her health insurance situation okay?

At 67, she is perhaps still physically able to work part time, not only to add income but to increase her interest in life, distract her from the divorce.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by willthrill81 »

fru-gal wrote: Thu Aug 22, 2019 7:52 pm At 67, she is perhaps still physically able to work part time, not only to add income but to increase her interest in life, distract her from the divorce.
I share your thoughts.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Mom-in-law divorced at 67, investment plan advice

Post by abuss368 »

fru-gal wrote: Thu Aug 22, 2019 7:52 pm
Maybe. Also the OP doesn't seem to know exactly what his MIL spends per month, he or she seems to be guessing. Is her health insurance situation okay?

At 67, she is perhaps still physically able to work part time, not only to add income but to increase her interest in life, distract her from the divorce.
All the more reasons not to get involved.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by carolinaman »

PartIrish wrote: Thu Aug 22, 2019 3:24 pm If your MIL was married for at least 10 years, might her ex-spousal social security benefit be higher than her current benefit?
+1. My thoughts as well.
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pathdoc
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Re: Mom-in-law divorced at 67, investment plan advice

Post by pathdoc »

Thank you all. This is all great advice.

MIL was married 12 years, and the $1k in social security includes the spousal portion. She's only had a job for maybe 5 years of her life. I told her last night that she can't afford the financial advisor, but is insistent as she has no idea about finances. In fact, I don't think she realizes how much she has to stretch this $400k. She spends a lot, eats out all the time socially, and is used to a higher living standard. I'm afraid the reality of having bills to pay on her own will hit her hard. My husband and I are giving her a few hundred a month to help. I'm a physician, but I aggressively save to retire early. I appreciate the advice not to get too involved--I'm trying to establish boundaries because I don't want her to see us as a bank. But I very often hear from her "You can afford it." Grrrrr.

I will refer her Vanguard PAS. That's a great idea and much cheaper than the 1% fee she was going with. Plus, it takes my hands out of it.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by fuddbogle »

pathdoc wrote: Fri Aug 23, 2019 12:13 pm Thank you all. This is all great advice.

She spends a lot, eats out all the time socially, and is used to a higher living standard.
She should find another man (or partner). Then you're really off the hook.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by GoldenFinch »

pathdoc wrote: Fri Aug 23, 2019 12:13 pm Thank you all. This is all great advice.

MIL was married 12 years, and the $1k in social security includes the spousal portion. She's only had a job for maybe 5 years of her life. I told her last night that she can't afford the financial advisor, but is insistent as she has no idea about finances. In fact, I don't think she realizes how much she has to stretch this $400k. She spends a lot, eats out all the time socially, and is used to a higher living standard. I'm afraid the reality of having bills to pay on her own will hit her hard. My husband and I are giving her a few hundred a month to help. I'm a physician, but I aggressively save to retire early. I appreciate the advice not to get too involved--I'm trying to establish boundaries because I don't want her to see us as a bank. But I very often hear from her "You can afford it." Grrrrr.

I will refer her Vanguard PAS. That's a great idea and much cheaper than the 1% fee she was going with. Plus, it takes my hands out of it.
Is your husband her only child? If not, I hope this situation isn’t falling only on your part of the family. Explain to her that some financial advisors are much more expensive than others and they may not put HER interests first in devising a plan. Tell her that Vanguard is very inexpensive and a fiduciary. I think cutting expenses should be her first priority, but I guess you may not have much control over that. Best of luck to you!
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Re: Mom-in-law divorced at 67, investment plan advice

Post by Jackson12 »

How much are you willing to spend to help support your mother? The following take is not meant to be judgmental but a reality check:
Based on what you’ve noted about her spending habits, your mother doesn’t seem likely to sustain a safe withdrawal rate from her portfolio.

Is that true? We had a relative in the same situation and helped financially for a bit, until we realized we weren’t really helping. We shouldn’t have allowed him to deny the reality of his precarious finances.

In his case, when he lost his safety net ( us) he made some significant changes. He decided to downsize and share his space with a roommate to help make ends meet, renting out a spare bedroom and use of an extra bathroom and other areas. He also worked part- time but could have gotten by without work if he was willing to pare expenses even more. He did cut back on spending.

It worked out.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by Jack FFR1846 »

pathdoc wrote: Fri Aug 23, 2019 12:13 pm My husband and I are giving her a few hundred a month to help.
She's got four hundred grand and is spending like she's in Congress. When she's blown through that in 2 years, she'll have your contributions as president and will come looking for more. I'd cut her off and let her see that spending actually reduces her balance. I'd also do some math for her. 1% for AUM and you can expect 5% front end loading and 1% ER for 7%. So going in with this FA will cost her $28,000 the first year. Tell her that.

For someone with this kind of spending problem and reality recognizing problem, an SPIA is a great option.
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J G Bankerton
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Re: Mom-in-law divorced at 67, investment plan advice

Post by J G Bankerton »

pathdoc wrote: Fri Aug 23, 2019 12:13 pm My husband and I are giving her a few hundred a month to help.
I would feel terrible if I took money from my children. “When a father gives to his son, both laugh; when a son gives to his father, both cry.” Yiddish proverb.

That is the reason I'm a Boglehead living below my means. May your MIL become a Boglehead too.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by willthrill81 »

Jack FFR1846 wrote: Fri Aug 23, 2019 7:43 pmFor someone with this kind of spending problem and reality recognizing problem, an SPIA is a great option.
I agree that her spending has got to come down, and while a SPIA for a 67 year old may be far from ideal, you're right that it may be a great tool in this situation.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Mom-in-law divorced at 67, investment plan advice

Post by Wiggums »

This is what I do with my in-laws and my family. I stay out of it. I never offer advice unless asked. Truth be told, they never follow my advice and they don’t seem to see the big picture or take a long term view. We spend and save money differently. They failed BH 101 !!! Nothing worse than giving money to people who are not aligned with your same goals or don’t spend it wisely.

Just my two cents.
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Re: Mom-in-law divorced at 67, investment plan advice

Post by sd323232 »

Wiggums wrote: Sat Aug 24, 2019 5:21 pm This is what I do with my in-laws and my family. I stay out of it. I never offer advice unless asked. Truth be told, they never follow my advice and they don’t seem to see the big picture or take a long term view. We spend and save money differently. They failed BH 101 !!! Nothing worse than giving money to people who are not aligned with your same goals or don’t spend it wisely.

Just my two cents.
I 100% percent agree with advice above! OP, why are you responsible for your MIL? I think you should stay away and this is not your problem to worry about. Your MIL worked only 5 years in her WHOLE life, did not care about her retirement?? Not your problem.
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