Should parents consider CD ladder or keep it simple?

[rarelyright]

Father is 78, in good health for his age and probably has 10-15 years left. Mother is 75, is completely dependent on a pacemaker and optimistically has 5-10 years left. Both are sharp mentally. They have no debt, own their $500k house and live off social security and $3k of RMD’s. Unforeseen medical expenses would be the only reason they would need more money. I am well off financially and will fund long-term care if needed. Leaving money for heirs is not a factor.

They currently hold $650k spread over a dozen or so low expense vanguard and fidelity index funds with a general allocation of 60% equities/40% bonds. Their desired allocation is 30% equities / 70% bonds.

They would like to consolidate their accounts into a few funds or possibly a CD ladder since rates are so good right now. We are headed toward either Rick Ferri’s “Low Risk” or “Conservative Growth” portfolios. https://core-4.com/classic-core-4-portf ... locations/ We value simplicity. My mom has zero interest in understanding this and my dad has done very well with little means but is getting tired of doing this and worried about his aggressive asset allocation.

Here’s my question: Should my dad consider a CD ladder or just pick one of Rick’s portfolios and relax?

Thanks in advance!

[retired@50]

... Their desired allocation is 30% equities / 70% bonds.


Here’s my question: Should my dad consider a CD ladder or just pick one of Rick’s portfolios and relax?

Thanks in advance!

VTINX would fit the bill. It's a 30% equity / 70% bond fund for retirees. It's where all the various target date retirement funds end up.

The simplicity of a single fund is often overlooked.

Regards,

[BitTooAggressive]

Father is 78, in good health for his age and probably has 10-15 years left. Mother is 75, is completely dependent on a pacemaker and optimistically has 5-10 years left. Both are sharp mentally. They have no debt, own their $500k house and live off social security and $3k of RMD’s. Unforeseen medical expenses would be the only reason they would need more money. I am well off financially and will fund long-term care if needed. Leaving money for heirs is not a factor.

They currently hold $650k spread over a dozen or so low expense vanguard and fidelity index funds with a general allocation of 60% equities/40% bonds. Their desired allocation is 30% equities / 70% bonds.

They would like to consolidate their accounts into a few funds or possibly a CD ladder since rates are so good right now. We are headed toward either Rick Ferri’s “Low Risk” or “Conservative Growth” portfolios. https://core-4.com/classic-core-4-portf ... locations/ We value simplicity. My mom has zero interest in understanding this and my dad has done very well with little means but is getting tired of doing this and worried about his aggressive asset allocation.

Here’s my question: Should my dad consider a CD ladder or just pick one of Rick’s portfolios and relax?

Thanks in advance!

30/70 is too conservative IMO. They barely touch the money but might need for long term care or medical. Will barely keep up with inflation.

Tell your dad to use the 60/40 Vanguard life strategy fund and be done with it. Very appropriate for their circumstances IMO.

[Tom_T]

60/40 is way too aggressive, IMO. In their circumstances, at their ages, things can change quickly.

[BitTooAggressive]

60/40 is way too aggressive, IMO. In their circumstances, at their ages, things can change quickly.

How so they are taking a very low withdrawal rate? They don’t need to plan for 30 years.

50/50 is fine too but I personally would not drop to 30 percent equities.

[cableguy]

I like CD's that are FDIC and Call protected. You have no worries about principle and the rates are good right now. You can ladder out 5 years and sleep at night. The downside is you do have to manage them...which doesn't take much time but you do have to manage them as they come due, buy new ones, etc.

[Sandtrap]

Father is 78, in good health for his age and probably has 10-15 years left. Mother is 75, is completely dependent on a pacemaker and optimistically has 5-10 years left. Both are sharp mentally. They have no debt, own their $500k house and live off social security and $3k of RMD’s. Unforeseen medical expenses would be the only reason they would need more money. I am well off financially and will fund long-term care if needed. Leaving money for heirs is not a factor.

They currently hold $650k spread over a dozen or so low expense vanguard and fidelity index funds with a general allocation of 60% equities/40% bonds. Their desired allocation is 30% equities / 70% bonds.

They would like to consolidate their accounts into a few funds or possibly a CD ladder since rates are so good right now. We are headed toward either Rick Ferri’s “Low Risk” or “Conservative Growth” portfolios. https://core-4.com/classic-core-4-portf ... locations/ We value simplicity. My mom has zero interest in understanding this and my dad has done very well with little means but is getting tired of doing this and worried about his aggressive asset allocation.

Here’s my question: Should my dad consider a CD ladder or just pick one of Rick’s portfolios and relax?

Thanks in advance!

to op:
1
Considering the "investment length/duration" and the 650k portfolio of funds "sustainability" over that time, it is generally, not specifically, thought that AA's between 60/40 and 40/60 are not going to "move the needle" by much.
This might help you: (enter your data).
Portfolio Visualizer: Engaging Data.
A
https://engaging-data.com/visualizing-4-rule/
B (with SS mortality table input)
https://engaging-data.com/will-money-last-retire-early/

2
Read: (regarding a 60/40 allocation)
Outstanding write up on the 64/40 allocation by Bernstein.
http://web.archive.org/web/20061214061 ... in6040.pdf
R. Ferri on Bernstein's 60/40
http://www.etf.com/sections/index-inve ... nopaging=1

3
While their current annual expenses are taken care of outside of the portfolio income stream, large medical expenses, either episodic or sustained such as "in home care" at 10-20k/month, etc, can quickly deplete the 650k. Episodic large withdrawals can act like SORR such that the it can't recover. But, given the short time frame, that's unknown. Something to be aware of that while "medical issues and the added expenses of lifestyle changes and adaptations" are not evident now, they are indeed the "elephant in the room" for both parents.

The fact that they have an added important financial "safety net" in you is priceless.

4
Simplicity is a great idea, especially now. Consolidating funds is a great idea. Decrease/avoid overlap, redundancy, and delete funds less than 5 percent of total value, is a good start.
(read) TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

5
As far as CD ladders: whether from available cash or as percentage of fixed, with #3 above in mind, be careful of durations and early cash out fees/etc. Keep in mind a need for; liquidity, accessibility, and security of principle.
CD ladders (new issue), Treasury ladders (new issue, no funds (zero volatility), etc.
Here's an overview from Fidelity:
https://fixedincome.fidelity.com/ftgw/f ... -new-issue
As you are managing your parent's portfolio, then keeping track and managing this part of their portfolio is not an issue. But, if they are self managing and not you, then over time, it might be better to have a 1 fund and "set and forget" structure.

to op:
I hope this gives you some things to ponder on and is helpful for you.
j
dis laimer: zillions of ways to things and thinking about things. This is only one.
(my perspective: senior retiree with the similar concerns).

[FellsGuy]

60/40 is way too aggressive, IMO. In their circumstances, at their ages, things can change quickly.

How so OP states they have plenty of assets to support them so if it all goes poof it would not change anything in anyone's life I say AOR or ITOT and AGG set it and forget it with this twist.
Carve out a slug of cash and force them to get on that cruise ship or buy a new car or treat themselves to something nice, a new deck or patio I don't know but something that Mom and Dad can do or have together especially if Mom may lose mobility soon. This money has no purpose other than to make them happy since family can backstop them if needed, Seize the Day.

[tomd37]

rarelyright,
We are an older couple 89/87 and up until recently had a four-fund portfolio in two TIRAs, a Roth IRA, and a taxable investment account with an overall 35/65 asset allocation. Wife has never had any interest in investments. Finally at mid-year this year we decided to simplify all our investments by exchanging all the IRAs into Vanguard's Target Retirement Income Fund (VTINX). The small taxable investment account remains in the Vanguard 500 Index Fund (VFIAX). The VFIAX will be added to if we have any monies in excess of our needs. I should add that we are covered quite well for long-term care needs with a LTC policy for each of us. I should also add that we have a daughter who is very financial savvy and could assist when needed.

We feel this move to a single account portfolio makes a lot of sense for us at this stage of our lives.

[Wiggums]

rarelyright,
We are an older couple 89/87 and up until recently had a four-fund portfolio in two TIRAs, a Roth IRA, and a taxable investment account with an overall 35/65 asset allocation. Wife has never had any interest in investments. Finally at mid-year this year we decided to simplify all our investments by exchanging all the IRAs into Vanguard's Target Retirement Income Fund (VTINX). The small taxable investment account remains in the Vanguard 500 Index Fund (VFIAX). The VFIAX will be added to if we have any monies in excess of our needs. I should add that we are covered quite well for long-term care needs with a LTC policy for each of us. I should also add that we have a daughter who is very financial savvy and could assist when needed.

We feel this move to a single account portfolio makes a lot of sense for us at this stage of our lives.

Both portfolios are very reasonable. The target date fund will certainly make things even easier for your daughter.

[ScubaHogg]

30/70 is too conservative IMO. They barely touch the money but might need for long term care or medical. Will barely keep up with inflation.

Even at the 10th% Monte Carlo has 30/70 handily outpacing inflation

https://legacy.portfoliovisualizer.com/ ... ddunVgW6VU

[delamer]

Is all of their money in tax-deferred accounts?

They could use a couple of Treasury funds — maybe one short-term and one-intermediate term — in lieu of the investment grade bond fund or a CD ladder. That would keep things simple and get them away from corporate bonds, which are somewhat more volatile than cash equivalents (like Treasuries).

[BitTooAggressive]

30/70 is too conservative IMO. They barely touch the money but might need for long term care or medical. Will barely keep up with inflation.

Even at the 10th% Monte Carlo has 30/70 handily outpacing inflation

https://legacy.portfoliovisualizer.com/ ... ddunVgW6VU

I am less optimistic about intermediate treasuries than the assumptions build into that simulation.

[rarelyright]

Thank you everyone! I really appreciate you all taking the time to help. Love the idea of the single fund approach.

Thanks again!

[rarelyright]

60/40 is way too aggressive, IMO. In their circumstances, at their ages, things can change quickly.

Carve out a slug of cash and force them to get on that cruise ship or buy a new car or treat themselves to something nice, a new deck or patio I don't know but something that Mom and Dad can do or have together especially if Mom may lose mobility soon. This money has no purpose other than to make them happy since family can backstop them if needed, Seize the Day.

I told them the same thing! Making progress on the vehicle side but they are a bit fun averse. Working on it.

[Believeland]

Agree to a large extent with Sandtrap. I help non financially savy but little older MIL with investments. Low spend rate with SS income is the key in this situation. Simplification is best. I have her in VTI, Swisx and laddered Treasuries for bond exposure and 10% cash levels in MM. I like the treasuries; not callable, state tax free, readily marketable with better control than mutual fund bond funds. MIL in very conservative 20/80 portfolio. Dialing the risk back to 40/60 might make Dad feel more comftorable. You don't want SORR with the the asset levels you have. If he really wanted 60/40, not sure I'd even argue that hard against with their current spend rate.

Depending on cost of living in your area, their paid off house is a safety valve for LTC. Get an idea what CC and LTC will cost in your area so you know exposure. With a low AA being proposed combined with spending levels, portfolio not likely to significantly grow or deteriorate if you go 40/60. In regard to laddering Treasuries, some work. If your brokerage doesn't automatically sweep, coupon/interest payments will need to be manually moved to MM(Schwab) to earn higher interest rates and avoiding idle low interest cash. Also recommend 6 month intervals on Treasury maturities or a year if you keep adequate MM levels. Try to have them mature on the same day of the month to minimize the hassle of sweeping the funds and tracking all the coupon dates. I'd let Dad continue to manage to keep him engaged but you can easily take this over with limited time requirements if need be. If you go that route make sure you have other siblings on board and continue be transparent with them.

Also agree on a splurge mentioned from another person. Car, vacation, whatever. Soon to be entering later part of slow go, no go years. They've worked hard and deserve to enjoy. Assume they'll resist but try to convince them. Worst case maybe you can convince then to go out for some nice dinners.

[FellsGuy]

60/40 is way too aggressive, IMO. In their circumstances, at their ages, things can change quickly.

Carve out a slug of cash and force them to get on that cruise ship or buy a new car or treat themselves to something nice, a new deck or patio I don't know but something that Mom and Dad can do or have together especially if Mom may lose mobility soon. This money has no purpose other than to make them happy since family can backstop them if needed, Seize the Day.

I told them the same thing! Making progress on the vehicle side but they are a bit fun averse. Working on it.

Good man I got my parents to splash out a bit but not so successful with the inlaws...

[Django Ii]

Another vote for VTINX and be done with it. You could also add on a CD ladder if that would bring some additional comfort to your folks. I doubt it would change their financial trajectory by much.

I'm a 30/70 person myself, a few years younger than your folks with a similar amount of financial assets.

[gavinsiu]

Keep it simple especially if the person is uninterested. Do you think your parents will be up to maintaining a bond/cd ladder? Probably not. The all-in-one funds are a good fit.

[Django Ii]

If the parents are only receiving $3000 in RMDs, the bulk of their savings are either in a Roth or taxable account. If in taxable, making changes could trigger unwanted taxes, which I'm sure the OP is aware of. Since it was mentioned the investments are already in low cost index funds, it might make more sense to keep what they have and sell down to the desired allocation over time, which could end up looking more like a Ferri model portfolio.
I'm a big fan of VTINX, but it might not be the best choice here.