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

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XtremeSki2001
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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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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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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
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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
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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
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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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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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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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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by XtremeSki2001 »

Sorry for taking so long to get back to everyone! I appreciate everyone's input.

I do think my mother is on a trend to run out of money at her burn rate of ~$140k/yr w/ just under $1.4M in assets. Her pension and social security gets her ~$65k/yr. Considering this, she'll likely be out of money in 15-18 years or so depending on the market. Will she live to 85-88? Maybe. Her mother lived to 88.

We've talked to the assisted living facility and, in the event she runs out of money, we confirmed medicaid would likely foot the difference between SS/pension and assisted living costs.

We don't think maneuvering now to put my mother on Medicaid after the five year look back is the right thing to do. That said, we are wondering if my mom has any options to fund grandkids college accounts or gift money in any reasonable way. My understanding is financial gifts can be made during the look back period so long as they're less than fair market value? Seems this has something to do w/ the penalty divisor, which to be honest, I don't understand at all (she's in NJ so it's $361.20 for this fiscal year).

Who would we discuss the above with? Estate lawyer, accountant, both?

Big Dog wrote: Thu Aug 04, 2022 8:58 amIf 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.
Thank you. I really like simplicity. VASIX may be too conservative, but VSMGX looks like a good middle ground w/ ~45% in bonds.
niagara_guy wrote: Thu Aug 04, 2022 9:20 amIs 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?
My math says you're in the ballpark, maybe 65% stocks.
niagara_guy wrote: Thu Aug 04, 2022 9:20 amThe 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?
Your assumption is right. I'm still working with the accountant on whether the assisted living is tax deductible or not. We're now down to $133,200/yr after some recent changes. Base cost at the facility is $100k/yr, but due to care level and prescriptions she's paying a higher cost. $14k/yr just to administer the multitude of meds she takes. I am slowly trying to convince her to do these herself as she has before with only minor issues (abused one prescription, but she no longer has this prescription or anything like it). The rest of the higher cost (Philly area) is it's just a really nice facility.
Colorado Guy wrote: Thu Aug 04, 2022 9:28 amWhile 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.

[snip]

$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.
Thanks for the suggestion on Vanguard PAS, had not considered this before. See above for living costs. It was a long road to get her in this place. You can read about some of the excitement here and here. My mother has depression and chronic anxiety ... also can be manipulative and can have a victim mentality. She's also quite smart. I've learned a lot and probably an expert on assisted living now haha.
A box of rain will ease the pain and love will see you through
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HMSVictory
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by HMSVictory »

I will address the moral portion of your question first.

No - I would not try to weasel money out of you mothers estate before the 5 year lookback period.

The money she has is to take care of her first and foremost not fund college for grandkids.

I think your mother would be well served with a 2 fund - 50/50 portfolio. Half in VTSAX and half in VBTLX. VBTLX should be held in tax advantaged accounts and VTSAX should be held in Roth and then taxable accounts. I would keep 1-2 years of expenses on hand... invest the rest. This KISS portfolio will outperform most professional money managers and be simple for you to manage. I concur with other posters that $12k a month is steep. I would look to transition to less costly place where Mom can easily afford it to eliminate financial stress. There's no way on earth she should be paying $10k a year for investment advice.
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Ret2018
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Ret2018 »

"We've talked to the assisted living facility and, in the event she runs out of money, we confirmed medicaid would likely foot the difference between SS/pension and assisted living costs."

As far as I know, Medicaid does not pay for assisted living, or "foot the difference." You might want to look very carefully at the income/asset limits for Medicaid in you mother's state, as well as covered benefits, and get an independent assessment (not from the facility she is currently in) of her options.

Typically, Medicaid only pays for two forms of long term care: skilled nursing facility, and home and community based services (e.g., personal care assistants that help in the home with activities of daily living). Depending on how Medicaid is structured in your mother's state, she may qualify for Medicaid based on either income and resources, or medical necessity.

Perhaps the facility meant Medicaid would pay for community based services while your mother was in her apartment? In that case your mother would have to spend down her social security to a qualifying level before being eligible for Medicaid coverage. Or perhaps, if they have a nursing home on the campus, they meant that Medicaid would cover those fees?
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by vineviz »

XtremeSki2001 wrote: Mon Sep 19, 2022 12:22 pm Sorry for taking so long to get back to everyone! I appreciate everyone's input.

I do think my mother is on a trend to run out of money at her burn rate of ~$140k/yr w/ just under $1.4M in assets. Her pension and social security gets her ~$65k/yr. Considering this, she'll likely be out of money in 15-18 years or so depending on the market. Will she live to 85-88? Maybe. Her mother lived to 88.
Given your mom's withdrawal rate and overall situation, I think an overall asset allocation (across all the accounts) of something like 50% to 60% stocks would probably be my best recommendation. And I don't think you need an advisor, and surely not one who picks the funds they've picked.

Thankfully the amount in taxable is very low so you have some flexibility.

Here's what I'd probably look at for a start.

Traditional IRA
• $500k Vanguard LifeStrategy Growth (VASGX)
• $1656k Vanguard Inflation-Protected Securities (VAIPX)

Roth IRA
• $23k Vanguard LifeStrategy Growth (VASGX)

Taxable & Cash
• $200k HYSA or Money Market Fund
• $325k Vanguard Total Stock Market Index Fund (VTSAX)
• $100k Vanguard Inflation-Protected Securities (VAIPX)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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XtremeSki2001
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by XtremeSki2001 »

Ret2018 wrote: Mon Sep 19, 2022 1:18 pm "We've talked to the assisted living facility and, in the event she runs out of money, we confirmed medicaid would likely foot the difference between SS/pension and assisted living costs."

As far as I know, Medicaid does not pay for assisted living, or "foot the difference." You might want to look very carefully at the income/asset limits for Medicaid in you mother's state, as well as covered benefits, and get an independent assessment (not from the facility she is currently in) of her options.
I didn't get into specifics with the facility, but think an assessment is warranted before we've spent too much money. Who would do such an assessment? Estate attorney? Someone else?
A box of rain will ease the pain and love will see you through
delamer
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by delamer »

Some states allow the use of Medicaid for assisted living costs; the facility your mother is in will know if that’s true in her state. And apparently it is.

Be aware though that the facility may put limits on the gifting that your mother can do and still be eligible to stay in the facility (under Medicaid) if ahe can no longer self-pay.

So she doesn’t get to give away half of her nest egg to her grandkids then cry poor and have the facility subsidize her care much sooner than if she hadn’t made the gifts. Note that I’m NOT talking about any Medicaid restrictions but the facility’s policies.

(My mother lived in a CCRC that had a policy limiting gifting or otherwise spending down assets in order for a resident to receive the facility’s subsidy if needed.)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Ret2018
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Re: Asset Allocation and Next Steps - 70 Year Old Mother (I'm POA)

Post by Ret2018 »

Who would do such an assessment?
All the state specific rules will be available publicly. You can sort through them yourself, or if that's not your thing, find an eldercare attorney in your mother's state.
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