Help me correct my Dad's Retirement Portfolio

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schildkrote
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Help me correct my Dad's Retirement Portfolio

Post by schildkrote »

Hey guys, this is my first post. I have been reading these forums for years though, so a big thanks to all of you. The knowledge here is outstanding and it has helped me immensely with my personal investing, but I am a bit stumped right now and worried for my Dad. Yesterday, I called him and wished him Happy 65th Birthday. I asked him how his retirement looks (he plans to work until 70 since he enjoys his job and for added social security payouts). Also, for what its worth he will get a pension when he retires.

Anyway...I was shocked to find out he has only invested in his individual company stock in his 401k and of coarse its in the dumps right now during this COVID recession. I told him not to touch it right now and wait for it to regain some of its value...he could potentially hold onto it for maybe 5-6 more years while it recovers since he will still be working. After it has recovered some of its value, does anyone have any ideas on the best way for him to transition to a portfolio that will benefit him? I was thinking something simple like 50% S&P 500 Index / 50% Total Bond Index since he basically knows nothing about investing.
dru808
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Re: Help me correct my Dad's Retirement Portfolio

Post by dru808 »

That’s horrible, it’s a chance your father will have to take, the stock recovering. I think your plan of 50/50 is a thousand times better than his current company stock only portfolio. Good luck, I hope his company stock surges and he has the wherewithal to transition.
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Stinky
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Re: Help me correct my Dad's Retirement Portfolio

Post by Stinky »

Welcome to the Forum.

Oh, what a mess! “Single stock” investing is just so dangerous, as you’re seeing now. I would advise your father to chart a path toward being 50% diversified stocks/50% fixed income by the time he retires.

He should stop investing new money in his company stock immediately. Direct new contributions and dividends to a 50/50 portfolio. If the company match is in stock, sell the new matching stock and reinvest 50/50.

He should also move out of his existing company stock. Unless he’s working for a bankrupt company like JC Penney, he could consider selling 20% of his existing company stock each year, so that he will be fully out by age 70. He could also move out faster if he wanted. All sales get reinvested 50/50.
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SevenBridgesRoad
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Re: Help me correct my Dad's Retirement Portfolio

Post by SevenBridgesRoad »

Three suggestions. Target Date Fund. Target Date Fund. Target Date Fund.
dandinsac
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Re: Help me correct my Dad's Retirement Portfolio

Post by dandinsac »

It’s pretty tough giving good advice without knowing roughly how much money is in the 401(k), what his current income is, and the amount of his expected Social Security monthly income.
123
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Re: Help me correct my Dad's Retirement Portfolio

Post by 123 »

schildkrote wrote: Mon May 18, 2020 10:22 pm ...worried for my Dad. Yesterday, I called him and wished him Happy 65th Birthday. I asked him how his retirement looks (he plans to work until 70 since he enjoys his job and for added social security payouts). Also, for what its worth he will get a pension when he retires...
Sometimes it's not cost-effective to delay taking a pension in order to get a higher social security benefit at age 70. While many pensions increase based on a longer length-of-service it is also true that if he keeps working he could be missing pension income in the interim that might not be made up by higher pension benefits in the future. If his pension income would be sufficient to cover his expenses there is no law that says he has to sign-up for monthly social security benefits before age 70, he can simple wait if he wishes. Hopefully he's considered the alternatives based on realistic estimates of pension and SSA amounts, but many people make up their minds without any financial thought in their evaluation process.
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Katietsu
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Re: Help me correct my Dad's Retirement Portfolio

Post by Katietsu »

Can you define “in the dumps” ?

I wonder if he should start selling out of company stock now. As previously suggested, maybe 20% at a time. If the drop in his company stock is similar to a total stock fund, I do not see a reason to wait. I would get completely out of company stock now in that case. If the drop significantly worse, I would still want to selling at least some of the company stock as you would have to wonder about the direction it will be moving going forward.
DanFrancis
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Re: Help me correct my Dad's Retirement Portfolio

Post by DanFrancis »

That is a challenge. My dad was in similar situation...unfortunately, his company stock never made a comeback. Your idea of 50/50 is fine or the suggestion of Target Retirement. But it's true...to get a better analysis...how much pension, SS, savings etc. And what does he want to spend each year in retirement.
boomer_techie
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Re: Help me correct my Dad's Retirement Portfolio

Post by boomer_techie »

schildkrote wrote: Mon May 18, 2020 10:22 pm Anyway...I was shocked to find out he has only invested in his individual company stock in his 401k and of coarse its in the dumps right now during this COVID recession. I told him not to touch it right now and wait for it to regain some of its value...he could potentially hold onto it for maybe 5-6 more years while it recovers since he will still be working.
His company stock is down... but so is everything else! Thus, the stock being down is not a reason to hold off diversifying. He should sell his employer's stock and buy something else that is currently "on sale". In the context of this forum, the "something else" should be an index fund. Presumably, over 5 to 6 years, the fund can recover before "dad" starts needing to draw on it. In the meanwhile, the fund will be a lot more diversified. And because this is in a 401k, he can do the entire switch at once.
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schildkrote
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Re: Help me correct my Dad's Retirement Portfolio

Post by schildkrote »

Thank you for the replies,

-I have definitely directed him to stop contributing to that stock, but I need to help him set up contributions to something else, I will take a look at his 401k options when I visit later this month. He mentioned seeing some Vanguard funds and I'll push him in that direction. Unfortunately I don't have all the exact financial numbers of his pension and SS, he just said "it's enough for me to live." I would like for him to have another cash flow like mentioned above for any unforeseen expenses such as healthcare.

-Interesting thoughts on the pension and not collecting the SS even though he stops working. He will make more working than collecting pension and he wants to work so I wouldn't see the advantage to retiring and taking the pension at this time. I doubt he can live off just the pension anyway.
Katietsu wrote: Tue May 19, 2020 1:41 am Can you define “in the dumps” ?

I wonder if he should start selling out of company stock now. As previously suggested, maybe 20% at a time. If the drop in his company stock is similar to a total stock fund, I do not see a reason to wait. I would get completely out of company stock now in that case. If the drop significantly worse, I would still want to selling at least some of the company stock as you would have to wonder about the direction it will be moving going forward.
-By in the dumps I mean the stock is down around 45%, much more than the total market. I do like the idea of getting out of it slowly over a five year period, and I will pitch that idea to him.

-I had thought about the Target Retirement Fund, but was thinking that it may be too late for something like that fund with his age being 65? I will look at it, but leaning towards 50% Equity/ 50% Bond.

-To add insult to injury I got curious and asked my mother what her finances look like, she said she is holding here entire portfolio in cash somewhere around 300k because she doesn't know what to do with it. Looks like I will have to help her too before her money disappears in the a cloud of inflation.
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Stinky
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Re: Help me correct my Dad's Retirement Portfolio

Post by Stinky »

schildkrote wrote: Tue May 19, 2020 9:35 am To add insult to injury I got curious and asked my mother what her finances look like, she said she is holding here entire portfolio in cash somewhere around 300k because she doesn't know what to do with it. Looks like I will have to help her too before her money disappears in the a cloud of inflation.
It’s really good that you’re interested in helping out both of your parents. It sounds like each of them has made investment decisions that most Bogleheads would consider as being imprudent.

If they accept your advice, you need to be prepared for the possible blowback from them if their existing investment “strategy” would have outperformed the one that you help them transition to. For example, your dad goes 50/50 immediately, he would have been better off staying in company stock if it outperforms the broader market. If your mom goes 50/50, she would have been better off staying in cash if the stock market goes down.

That’s an argument for (a) educating them why a broadly diversified 50/50 portfolio is better than their current positions, and (b) moving toward the 50/50 goal at a measured pace.
It's a GREAT day to be alive - Travis Tritt
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Brianmcg321
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Re: Help me correct my Dad's Retirement Portfolio

Post by Brianmcg321 »

I wouldn't wait. I would get him in a good index fund now.

What if the stock never recovers.
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BL
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Re: Help me correct my Dad's Retirement Portfolio

Post by BL »

They might like to read the updated edition of Jane Bryant Quinn's book for retirees: How to Make Your Money Last. Here is an interview with her in Forbes:
https://www.forbes.com/sites/nextavenue ... edb4a64a0e

Are your parents together or separate units? It might make a difference on planning.
delamer
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Re: Help me correct my Dad's Retirement Portfolio

Post by delamer »

schildkrote wrote: Tue May 19, 2020 9:35 am Thank you for the replies,

-I have definitely directed him to stop contributing to that stock, but I need to help him set up contributions to something else, I will take a look at his 401k options when I visit later this month. He mentioned seeing some Vanguard funds and I'll push him in that direction. Unfortunately I don't have all the exact financial numbers of his pension and SS, he just said "it's enough for me to live." I would like for him to have another cash flow like mentioned above for any unforeseen expenses such as healthcare.

-Interesting thoughts on the pension and not collecting the SS even though he stops working. He will make more working than collecting pension and he wants to work so I wouldn't see the advantage to retiring and taking the pension at this time. I doubt he can live off just the pension anyway.
Katietsu wrote: Tue May 19, 2020 1:41 am Can you define “in the dumps” ?

I wonder if he should start selling out of company stock now. As previously suggested, maybe 20% at a time. If the drop in his company stock is similar to a total stock fund, I do not see a reason to wait. I would get completely out of company stock now in that case. If the drop significantly worse, I would still want to selling at least some of the company stock as you would have to wonder about the direction it will be moving going forward.
-By in the dumps I mean the stock is down around 45%, much more than the total market. I do like the idea of getting out of it slowly over a five year period, and I will pitch that idea to him.

-I had thought about the Target Retirement Fund, but was thinking that it may be too late for something like that fund with his age being 65? I will look at it, but leaning towards 50% Equity/ 50% Bond.

-To add insult to injury I got curious and asked my mother what her finances look like, she said she is holding here entire portfolio in cash somewhere around 300k because she doesn't know what to do with it. Looks like I will have to help her too before her money disappears in the a cloud of inflation.
Assuming your father has worked for the company for a long time, some of his shares were likely purchased at a price below the current price. So while he is “losing” versus selling at peak, he probably has made money on some shares even at today’s price. That may help him part with some.

Are your parents still married? If so, they should be coordinating their investing strategies.
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Eagle33
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Re: Help me correct my Dad's Retirement Portfolio

Post by Eagle33 »

delamer wrote: Tue May 19, 2020 11:40 am Assuming your father has worked for the company for a long time, some of his shares were likely purchased at a price below the current price. So while he is “losing” versus selling at peak, he probably has made money on some shares even at today’s price. That may help him part with some.

Are your parents still married? If so, they should be coordinating their investing strategies.
+1
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