Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

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XtremeSki2001
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Location: Philadelphia, PA

Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by XtremeSki2001 »

All - Seeking some input for my 70 year old mother. I'm her POA. She has severe anxiety and depression. She lives in an assisted living facility. Her husband / my father passed in 2020 and he managed the finances. My mother's parents lived until their late 80s. I'm revisiting how she's doing financially now that I've got her living situation settled (long story - here and here).

Her rent at the assisted living facility is ~$12k/month ($144k/yr). Her other living expenses are <$5k/yr. She has no debt. She receives ~$68k/yr from SS / pension. The remaining $80k of rent/expenses is paid from her cash account. She has around $732k in investments and $583k in cash.

My father's old business partner now manages her investments. It looks like he's taking ~$2.5k/quarter as an advisory fee, which is probably around 1% or so. The funds she's in and current allocation is below. To me, it seems far too aggressive. I have no idea what agreement he and my father made and he never talked $ with me. My mother doesn't really know either and pretty much just rolls with the punches.

I'm trying to determine:

1) How much of the cash should I move to taxable investments?

2) How should the asset allocation of a 70 year old with the aforementioned expenses look like?

3) Anything else I should consider? This is all pretty outside my wheelhouse.

Savings Breakout
IRA - $665k
Roth - $23k
Taxable - $44k
Cash - $583k

Funds
JCONX - JANUS HENDERSON CONTRARIAN CL I
JMEE - JP MORGAN MKT EXPANSION ENH EQTY ETF
BPTIX - BARON PARTNERS INSTL CL
FCSZX - FRANKLIN CONVERTIBLE SECS ADVISOR CL
PHYZX - PGIM HIGH YIELD CL Z
PUCZX - PGIM STRATEGIC BOND CL Z

Allocation
Convertibles (7.24%)
Cash and Equiv (10.09%)
Int Long HY Bond (6.14%)
Large US Gro Eq (14.95%)
Mid Cap US Bl Eq (27.52%)
Small US Bl Eq (21.08%)
Strategic Income (5.8%)
A box of rain will ease the pain and love will see you through
Big Dog
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Joined: Mon Sep 07, 2015 4:12 pm

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Big Dog »

If I were in your shoes, I'd keep about 1-year in cash/CD/Ultra Short Term Bond fund, and move the rest to Vanguard's Life Strategy Income or Moderate Growth fund.
niagara_guy
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Joined: Tue Feb 11, 2020 8:32 am

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by niagara_guy »

I would not pay 1% for 'advise,' just my opinion. I recommend that you read the getting started (link below):

https://www.bogleheads.org/wiki/Getting_started

I would use a 3 fund portfolio, the AA (asset allocation) would be less than 50% stocks because of her age (maybe much less). Is she really at 60% stocks in her current portfolio not counting the 7% in convertibles? Really? did i read this right and do the math right?

I would use broad index funds for the stock portion like a S&P 500 index fund or a total stock market index fund with low cost (.04% or lower).

The 665k (I assume is in a traditional IRA) I think can be drawn down to help pay the 144k/year in assisted living, I think (not sure) that the 144k will be a tax deduction for medical expenses which will offset the withdrawal from the t-ira. Make sure you know the tax rules before doing this, or consult with a tax advisor. I would model this for 2022 with 2021 tax software to be sure.

I think 144k/year for assisted living is very high, just my opinion. Is she in a VHCOL area?

I am not well versed in bonds, etc. but there are safe places to put cash that will return something. (I assume her cash account is not returning much.) HY (high yield, really they are 'high risk') bonds do not belong in the bond allocation, I would not hold them at all.
Colorado Guy
Posts: 255
Joined: Sun Nov 05, 2017 1:57 pm

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Colorado Guy »

XtremeSki2001 wrote: Thu Aug 04, 2022 8:49 am I'm trying to determine:

1) How much of the cash should I move to taxable investments?

2) How should the asset allocation of a 70 year old with the aforementioned expenses look like?

3) Anything else I should consider? This is all pretty outside my wheelhouse.

Savings Breakout
IRA - $665k
Roth - $23k
Taxable - $44k
Cash - $583k
XtremeSki, take my thoughts below with a grain of salt, it may or may not be helpful.

While it is good she has some assets, they seem to be a little light considering her annual fixed expenses. I would suggest moving it to Vanguard or Fidelity or somewhere with lower management fees. The former business partner may be a nice guy, but $10,000 a year is pretty heavy. A Vanguard PAS should charge a lot less.

For asset allocation, considering the low balance and her age, would suggest a more conservative approach. A Vanguard PAS may, during an initial conversation (initial consultations are free btw), provide some good approaches that work for people in a similar situation. Part of the consideration is expected life expectancy.

For moving funds to taxable, consider what she is currently declaring as income on her taxes, and withdraw an amount from the IRA (not Roth) that keeps her in the same tax bracket.

Regarding investments, it is best to not spend money that you already have, so look for ways to reduce expenses. $12k/month for assisted living expenses? Not familiar with costs (or the area she is in), but they seem very high as you don't mention a physical disability. My bother and SIL recently was in a facility that was substantially less in cost. You may want to shop around. There is a huge benefit to the social aspects as well, so seek a facility that does activities, including Silver Sneaker type fitness classes (some are wheelchair oriented).

For you, don't be overwhelmed. It really is a learning process.
Nutmeg
Posts: 401
Joined: Wed Jul 26, 2017 12:52 pm

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Nutmeg »

XtremeSki2001 wrote: Thu Aug 04, 2022 8:49 am All - Seeking some input for my 70 year old mother. I'm her POA. She has severe anxiety and depression. She lives in an assisted living facility. Her husband / my father passed in 2020 and he managed the finances. My mother's parents lived until their late 80s. I'm revisiting how she's doing financially now that I've got her living situation settled (long story - here and here).

Her rent at the assisted living facility is ~$12k/month ($144k/yr). Her other living expenses are <$5k/yr. She has no debt. She receives ~$68k/yr from SS / pension. The remaining $80k of rent/expenses is paid from her cash account. She has around $732k in investments and $583k in cash.

My father's old business partner now manages her investments. It looks like he's taking ~$2.5k/quarter as an advisory fee, which is probably around 1% or so. The funds she's in and current allocation is below. To me, it seems far too aggressive. I have no idea what agreement he and my father made and he never talked $ with me. My mother doesn't really know either and pretty much just rolls with the punches.

I'm trying to determine:

1) How much of the cash should I move to taxable investments?

2) How should the asset allocation of a 70 year old with the aforementioned expenses look like?

3) Anything else I should consider? This is all pretty outside my wheelhouse.

Savings Breakout
IRA - $665k
Roth - $23k
Taxable - $44k
Cash - $583k

Funds
JCONX - JANUS HENDERSON CONTRARIAN CL I
JMEE - JP MORGAN MKT EXPANSION ENH EQTY ETF
BPTIX - BARON PARTNERS INSTL CL
FCSZX - FRANKLIN CONVERTIBLE SECS ADVISOR CL
PHYZX - PGIM HIGH YIELD CL Z
PUCZX - PGIM STRATEGIC BOND CL Z

Allocation
Convertibles (7.24%)
Cash and Equiv (10.09%)
Int Long HY Bond (6.14%)
Large US Gro Eq (14.95%)
Mid Cap US Bl Eq (27.52%)
Small US Bl Eq (21.08%)
Strategic Income (5.8%)

You are correct. This is way too aggressive and way too expensive.

I suggest that you look up each of the funds (which you can easily do by typing the CUSIP number into a search engine) to see the expense ratios. For example, BPTIX has an expense ratio of 1.11% (as compared to many Vanguard and Fidelity index funds which have expense ratios of less than .10 percent.) Your mother is paying over 1 percent to an advisor and over 1 percent in fees to own an actively-managed, high-cap equity fund for which the Morningstar analyst’s states:
No fund is defined by a single stock more than this one. At 45% of net assets as of September 2021, Tesla TSLA overshadows the rest of the portfolio and effectively controls this strategy's fate.
https://www.morningstar.com/funds/xnas/bptix/quote

Now that your mother is in assisted living and dependent on her investments to pay for part of it, a more conservative asset allocation is essential. The good news is that you know when her expenses will occur, so you can choose investments with similar maturities. With a relative in a SNF, I purchased a Treasury ladder in amounts and maturities to correspond with the monthly bills.

1) Cash: Retain what allows you and your mother to sleep at night. If you invest in very safe investments such as Treasuries, the money doesn’t have to be in actual cash.
2) AA: I am no expert. I have read that one shouldn’t hold any money that you will need within 10 years in equities, but that some level of investment in equities can help your investments counter inflation. I will be looking at other commenters’ responses to learn more!
3) Consider learning more so that you can learn to manage your mother’s portfolio. If her current advisor is charging $10,000 per year, in eight years he will have received $80,000, enough to fund a year of her income shortfall for assisted living expenses! She needs that money, and some of the current investments are inappropriate. If you don’t feel comfortable, Vanguard’s PAS service at .3 percent might be helpful.

Also, you will learn more yourself and be able to receive more focused comments if you follow the portfolio format that the forum recommends, which would require gathering and posting more information. If you aren’t comfortable posting her state, post her state’s tax rate.

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Last edited by Nutmeg on Thu Aug 04, 2022 10:34 am, edited 1 time in total.
Circe
Posts: 82
Joined: Thu Apr 21, 2022 7:16 pm

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Circe »

I had a relative in a skilled nursing facility recently (highest level of service) for $9,500/mo in a pretty high cost-of-living area, so it does seem that your mother is paying a lot for assisted living unless it's really luxurious. Is she happy living there?

Agree with others to just move the investments to Fidelity, Vanguard or Schwab. Let them know that you want to minimize costs and taxes and don't need a personal advisor and invest in some low cost ETFs like VTI and a bond fund. Best wishes!
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XtremeSki2001
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Location: Philadelphia, PA

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by XtremeSki2001 »

Thanks everyone for the input. Lots to digest here. Due to her allocation she was closer to 1.5-1.6M before the recent downtrend in the market. At that time I thought she was in pretty good shape since she also has ~$70k/yr from her pension/SS.
Circe wrote: Thu Aug 04, 2022 10:04 am I had a relative in a skilled nursing facility recently (highest level of service) for $9,500/mo in a pretty high cost-of-living area, so it does seem that your mother is paying a lot for assisted living unless it's really luxurious. Is she happy living there?

Agree with others to just move the investments to Fidelity, Vanguard or Schwab. Let them know that you want to minimize costs and taxes and don't need a personal advisor and invest in some low cost ETFs like VTI and a bond fund. Best wishes!
We originally found a cheaper place, but they wouldn't take her because of the level of care she needs. It's a long story. She needs help with her medications, toileting, showering, etc. Most of the affordable places don't offer this level of care. As a silver lining, contract states if my mom does run out of money at any point they will accept Medicaid and allow her to stay in her current room. It is pretty high-end and just outside Philadelphia. It would be around $9k a month if it wasn't for the level of care upgrades we have to pay. She really likes it - happiest I've seen her in a decade.
A box of rain will ease the pain and love will see you through
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BL
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by BL »

It sounds like you found a good place for your Mom.
Do you have siblings or are there other heirs here?

Agree that it is time to move to a lesser cost or no cost advisor like PAS or you with a handful or one fund. There might be some bonds that will be hard to cash in. A talk with PAS might give you some ideas and let you decide if you want them to handle this move, at least for a time. It would be a lot less stressful for you to have them deal with current advisor. I would want at least 2-3 years of cash equivalents handy.

The settlement fund/money market fund at Vanguard is currently paying 2+% interest. Treasury bills/notes and brokered CDs can be purchased directly from there and will return to MM when mature at about 2-3% for about 1 month to 2 years. There are threads here that explain everything you need to know. The only cost to purchase is $1/$1,000 for existing CDs, new CDs and both new and existing treasuries have no cost, AFAIK. If interested, perhaps you could try buying for yourself in units of 1 ($1,000) at your brokerage, following good directions from links here.

You could also try buying I-Bonds at treasuryDirect.gov. Not sure how it works with POA, however, but the 10k/yr pays 9.6% for 6 months and x% for the next 6 months.
delamer
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by delamer »

Where are her funds being held now? Do you foresee a problem getting them money way from the advisor?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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XtremeSki2001
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Location: Philadelphia, PA

Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by XtremeSki2001 »

BL wrote: Fri Aug 05, 2022 4:22 pm It sounds like you found a good place for your Mom.
Do you have siblings or are there other heirs here?
Thanks. Was a long road to get to where we are today. I have a younger sister who is pretty flexible and understanding. Thanks for your other input, lots to read/research.
delamer wrote: Fri Aug 05, 2022 4:31 pm Where are her funds being held now? Do you foresee a problem getting them money way from the advisor?
LPL. I don't think he'd take any issue with what my mom and I decide. He worked with my father for ~15 years.
A box of rain will ease the pain and love will see you through
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