Investing IRA money for elderly parents

[subiej]

Hi All,

I'm currently trying to help my parents re-invest the funds in their IRAs. They are 85 and 90. My father (90) has always been into precious metals, and had about half of their retirement funds in a Fidelity precious metals fund (FSAGX) (!). This never seemed particularly wise to me, as it represented about half of their liquid assets, but he was stubborn as hell. Now that he's developed Alzheimer's, my Mom and I are free to reallocate.

So, there's really only about $200k in their IRAs. Other than that, they have a little bit of non-qualified money ($26k) in a VG fund, which I also need to look at. Most of their living expenses are covered by SS and a decent pension, and they own their home ($500k) outright. They do, of course, take their RMD every year from the IRAs, but I suspect my mom may need to dip into it more soon, as she'll lose some of my dad's pension, should he die first. Bottom line, they need this money to be available to them in the next 5-10 years, for sure.

Both IRAs are currently at Fidelity, which I thought I might switch to Vanguard, but expense ratios seem to be somewhat comparable (is this correct?), so I'm not sure that's worth doing.

Where would you put this money? Assuming I keep them at Fidelity, are there any Fidelity funds or types of funds you would recommend for their situation? Maybe just a TIPS? Bonds? I am a bit younger, so I'm not as familiar with the more conservative funds.

Thanks in advance for any advice you have!

[delamer]

There’s no need to move the IRA out of Fidelity. You can buy Vanguard ETFs without paying any commissions at Fidelity, if that’s what you decide is best for them.

Given their fairly modest savings and fairly short life expectancies, you are on the right track with TIPS, CDs, or short-term bonds. A small exposure to stocks (20%) would be reasonable, but could be forgone.

Are they currently spending all or part of their RMDs to cover expenses?

[dagsboro]

Interest rates are higher than they have been in some time right now and their age argues in favor of caution and security during an inflationary period. And If they were my parents, I would be putting some extra money of my own aside as a considerate child to help them, just in case.

[subiej]

Interest rates are higher than they have been in some time right now and their age argues in favor of caution and security during an inflationary period. And If they were my parents, I would be putting some extra money of my own aside as a considerate child to help them, just in case.

Yikes! I hadn’t thought of that. I’m a little worried about them. It’s definitely sobering when you discover that your parents are not as secure as you thought they were, all these years.

To answer delamer’s question, yes, that money is getting spent, although I’m going through their expenses now, and finding a lot of “leakage”- things they’re getting overcharged for or charged for which they don’t use.

My hope is that the IRA money takes up some of the slack for my mom, if my dad were to die first, as she will lose some of his pension and SS at that point. And then it and/or the equity from their house can be used for nursing care, if she can’t afford care at home. I’m probably missing something, here…

[HomeStretch]

… Now that he's developed Alzheimer's …
… Where would you put this money? …

Consider deferring portfolio decisions for now. Your parents have a small portfolio, your dad’s pension does not have 100% survivor benefits and your dad has Alzheimer’s. If they haven’t done so already, the first financial priority should be to set up a consultation asap for your parents and you with a elder law attorney in their state that is experienced with Medicaid to set up a plan which likely will include updating their estate documents and to preserve from Medicaid whatever assets possible for your mom as a well/community spouse.

Reconsider using the house equity to pay for care. Medicaid in most/all states will allow your mom to keep her primary residence, one car and some of the assets if properly titled rather than having to spend it all on spousal care. You don’t want your mom to be left destitute with little assets for her living and care expenses.

Do your parents have life insurance and/or a long-term care policy?

Dementia care is very expensive especially as the disease progresses. Aside from a long-term care policy’s benefits, the main source for financial assistance with dementia care is Medicaid which will require your parents’ to spend down their countable assets to a state-determined maximum before they are eligible for long-term care benefits.

[delamer]

Interest rates are higher than they have been in some time right now and their age argues in favor of caution and security during an inflationary period. And If they were my parents, I would be putting some extra money of my own aside as a considerate child to help them, just in case.

Yikes! I hadn’t thought of that. I’m a little worried about them. It’s definitely sobering when you discover that your parents are not as secure as you thought they were, all these years.

To answer delamer’s question, yes, that money is getting spent, although I’m going through their expenses now, and finding a lot of “leakage”- things they’re getting overcharged for or charged for which they don’t use.

My hope is that the IRA money takes up some of the slack for my mom, if my dad were to die first, as she will lose some of his pension and SS at that point. And then it and/or the equity from their house can be used for nursing care, if she can’t afford care at home. I’m probably missing something, here…

Since the RMD money is being spent, that argues for keeping it invested conservatively. I’d stick with cash equivalents, maybe a CD or Treasury ladder.

A review of their expenses is a good idea. They don’t have a lot of leeway.

[subiej]

Thanks so much for both of these responses.

HomeStretch, thanks for your comments. Being totally new to this, I didn't understand that Medicaid would have any part in this, so I appreciate you bringing that issue to my attention. We did recently have a meeting with their estate attorney, who feels that everything is in order– they have a trust, everything is properly titled, etc.– but neither Medicaid nor dementia care was discussed. It sounds as though there is some strategy there, which we would do well to think about sooner rather than later.

If their estate attorney doesn't seem to know about this, it sounds like I need to find then an elder care attorney? Or is there someone else who could help with this? I have a great financial planner I could ask, but I'm not sure she's familiar with this issue.

They do not have life insurance nor long term care insurance.

[masha12]

Thanks so much for both of these responses.

HomeStretch, thanks for your comments. Being totally new to this, I didn't understand that Medicaid would have any part in this, so I appreciate you bringing that issue to my attention. We did recently have a meeting with their estate attorney, who feels that everything is in order– they have a trust, everything is properly titled, etc.– but neither Medicaid nor dementia care was discussed. It sounds as though there is some strategy there, which we would do well to think about sooner rather than later.

If their estate attorney doesn't seem to know about this, it sounds like I need to find then an elder care attorney? Or is there someone else who could help with this? I have a great financial planner I could ask, but I'm not sure she's familiar with this issue.

They do not have life insurance nor long term care insurance.

Don’t feel bad about the lack of life insurance and LTC insurance.

At 90 with Alzheimer’s, seems unlikely your dad will survive a five-year look back. Probably worth talking to an elder care attorney, but only 1/3 of 90 year olds make it to 95. With Alzheimer’s, it seems more likely than not that your dad will not beat the odds. (After taking over my parent’s finances and trying to figure out how to maximize safe returns and have a cash flow to pay for care, I developed a morbid interest in life expectancies for those well over 80.)

[HomeStretch]

HomeStretch, thanks for your comments. Being totally new to this, I didn't understand that Medicaid would have any part in this, so I appreciate you bringing that issue to my attention. We did recently have a meeting with their estate attorney, who feels that everything is in order– they have a trust, everything is properly titled, etc.– but neither Medicaid nor dementia care was discussed. It sounds as though there is some strategy there, which we would do well to think about sooner rather than later. …

The estate attorney and the elder law attorney often have functional overlaps but also different areas of expertise.

For example, my parents’ estate attorney used the state statutory form for their durable power of attorneys (DPOA). But when my dad developed dementia (but was still competent), the elder law attorney drafted new DPOAs that had a page of specific powers in case a Medicaid LTC filing was needed. When that became needed, the DPOA specific powers allowed me, as my dad’s attorney-in-fact, to set up prepaid burial trusts as part of the asset spend down and transfer their primary residence and car into my mom’s name solely so that Medicaid could not require these assets to be sold for my dad’s care. These items could be done during the 5 year look back period as long as the DPOA wording was appropriate.

Another example, my mom’s Will was changed to leave my dad only his spousal share of her Estate. She also removed my dad as Executor and POA as he was no longer competent.

Finally, we hired the elder law attorney to handle the Medicaid LTC filing and state caseworker review.