Have no problem managing my $5M portfolio - scared of my Dad's $120k

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AirTimeMD
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Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by AirTimeMD »

Hi BH,

My father is 69 years old and has never been a net saver. He had money problems based largely in an inability to limit his spending on material items throughout his 30-60s. He currently earns approximately $80k a year and will most likely have to work another 5+ years. The great news is that he works for a very close affluent friend of his and has a very 'easy' job with great security.

My father has seen me make slow and steady investments over the last 10 years of my life and has been impressed with my discipline and results. He has asked me to help him re-structure his investments and has provided me with documents for 2 IRA plans totaling $120,000.

I believe that a great fund to put him in would be the Fidelity Target Date Retirement Fund of 2025. My father cannot afford to risk anything and I feel like this managed fund would be a safe bet for him. I'm making this post selfishly for peace of mind. My father has his emergency fund and 97k left on his mortgage at 5.3%. Is there a better way to allocate this IRA than target retirement date 2025? I welcome anyone's constructive feedback...

Thank you All.
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dru808
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by dru808 »

If he can’t afford to risk anything I think the fidelity 2025 fund is a little to risky.
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j0nnyg1984
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by j0nnyg1984 »

On the flip side, if he can’t afford any risk, paying off the mortgage is the safest bet.

I think your dad is in a position where he can’t NOT afford to take risk. Unless he plans on working until he drops, he needs to save and invest everything possible.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by RadAudit »

AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
Could you please identify which risks he wishes to avoid.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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AirTimeMD
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by AirTimeMD »

Hi Dru,

You are right. I did not mean it as literal as I can tell it read for you (and others). My father does understand that any type of investment in any market has inherent risk. I think a better articulation on my part would be, "he cannot afford to take risks relative to his age of 69 years old and financial situation of having approximately $350k in net worth." I'm not sure if this changes your feedback but I welcome your opinion and that of others on the board.
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AirTimeMD
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by AirTimeMD »

RadAudit wrote: Wed Jul 24, 2019 10:42 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
Could you please identify which risks he wishes to avoid.
He would prefer preservation and slow sustainable growth over 5-10% swings in total value over the next 5-10 years.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by White Coat Investor »

AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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AirTimeMD
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by AirTimeMD »

White Coat Investor wrote: Wed Jul 24, 2019 10:46 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
This would be the kind of negative and unhelpful feedback I'd like to avoid.

I love him. I obviously am (and would be in any negative event) a safety net for him but the man has far too much pride to accept money from me. I have direct deposited into his bank account, purchased him vehicles, offered to pay off his mortgage, etc. but my father absolutely refuses to be a "dependent". I would imagine that their are other members of this forum that can relate to this obstacle.
Last edited by AirTimeMD on Wed Jul 24, 2019 10:50 am, edited 1 time in total.
delamer
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by delamer »

How about the Vanguard LifeStrategy Income Fund: https://investor.vanguard.com/mutual-fu ... rview/0723

It would be better to find out his expected Social Security benefits and his expected living expenses before making a decision about investments though.

He can start his Social Security benefit at 70 and save it all in a taxable account if he has the discipline.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by jebmke »

if is not itemizing on his taxes and deducting the interest on the mortgage, paying it off would be a 5.3% after-tax return, right? That doesn't sound bad to me.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Tamarind
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Tamarind »

I think a near-dated TR fund is appropriate. Make sure it's as low expense as you can get. Within two years he'll begin taking RMDs from the tIRA, which are calculated to not deplete the balance during an average lifespan. Set the RMD to be withdrawn automatically to his checking account. Work hard on convincing him that he can't withdraw from it except the RMD.

What will your dad's social security look like? If he hasn't taken it yet, tell him good job as that may help a LOT.

Given his situation, I would not advise that he pay off the house. In fact I might see if he can refinance with a bank like Third Federal that takes on low-balance refinances. He should be able to sharply reduce his interest rate and get a fairly short term (10 or 15 years) that's still affordable. Once he stops working he will not be able to do this.
Last edited by Tamarind on Wed Jul 24, 2019 11:05 am, edited 1 time in total.
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White Coat Investor
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by White Coat Investor »

AirTimeMD wrote: Wed Jul 24, 2019 10:49 am
White Coat Investor wrote: Wed Jul 24, 2019 10:46 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
This would be the kind of negative and unhelpful feedback I'd like to avoid.

I love him. I obviously am (and would be in any negative event) a safety net for him but the man has far too much pride to accept money from me. I have direct deposited into his bank account, purchased him vehicles, offered to pay off his mortgage, etc. but my father absolutely refuses to be a "dependent". I would imagine that their are other members of this forum that can relate to this obstacle.
I'm just teasing with the "hate" comment. But my point is that he probably isn't limited to just his $120K, especially in the event of terrible economic events. You're NOT going to leave him on the street without food or medical care. He can afford to take a lot more risk than someone with no children by virtue of your economic success. So instead of a 40/60 portfolio, perhaps he can have a 75/25 portfolio. See what I'm saying?

You say he wouldn't accept money, but he's surely going to let you pay for vacations and dinners with him, buy him generous birthday and Christmas gifts etc. There are lots of ways to transfer money to people without making it feel like a handout. I mean even right now you're saving him thousands in financial advisory fees by performing that function for him.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by RadAudit »

AirTimeMD wrote: Wed Jul 24, 2019 10:45 am
RadAudit wrote: Wed Jul 24, 2019 10:42 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
Could you please identify which risks he wishes to avoid.
He would prefer preservation and slow sustainable growth over 5-10% swings in total value over the next 5-10 years.
You might want to look at Vanguard Target Retirement Income Fund (VTINX) and / or Vanguard Life Strategy Income Fund (VASIX)
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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AirTimeMD
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by AirTimeMD »

jebmke wrote: Wed Jul 24, 2019 10:53 am if is not itemizing on his taxes and deducting the interest on the mortgage, paying it off would be a 5.3% after-tax return, right? That doesn't sound bad to me.
Great point!
White Coat Investor wrote: Wed Jul 24, 2019 11:05 am
AirTimeMD wrote: Wed Jul 24, 2019 10:49 am
White Coat Investor wrote: Wed Jul 24, 2019 10:46 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
This would be the kind of negative and unhelpful feedback I'd like to avoid.

I love him. I obviously am (and would be in any negative event) a safety net for him but the man has far too much pride to accept money from me. I have direct deposited into his bank account, purchased him vehicles, offered to pay off his mortgage, etc. but my father absolutely refuses to be a "dependent". I would imagine that their are other members of this forum that can relate to this obstacle.
I'm just teasing with the "hate" comment. But my point is that he probably isn't limited to just his $120K, especially in the event of terrible economic events. You're NOT going to leave him on the street without food or medical care. He can afford to take a lot more risk than someone with no children by virtue of your economic success. So instead of a 40/60 portfolio, perhaps he can have a 75/25 portfolio. See what I'm saying?

You say he wouldn't accept money, but he's surely going to let you pay for vacations and dinners with him, buy him generous birthday and Christmas gifts etc. There are lots of ways to transfer money to people without making it feel like a handout. I mean even right now you're saving him thousands in financial advisory fees by performing that function for him.
Sorry - I was definitely overly sensitive to the joke. It's a soft spot for me because I wish I could do more. You are spot on about vacations, dinners, gifts, etc. I could ALWAYS do more but I think the major obstacle is that his pride causes him to withdraw when he feels like I am supporting him or doing "more than I should". He's the type of father that will argue with me over me trying to pay a dinner bill. I tried to gift him $14,000 last year and he ripped it up and told me to put it towards the son I am expecting. I agree with your points about him being 'able' to take more risks but I wouldn't have success selling him on that strategy by substantiating it with him being able to use me as a safety net. He would not be agreeable to that in principle.
Tamarind wrote: Wed Jul 24, 2019 11:01 am I think a near-dated TR fund is appropriate. Make sure it's as low expense as you can get. Within two years he'll begin taking RMDs from the tIRA, which are calculated to not deplete the balance during an average lifespan. Set the RMD to be withdrawn automatically to his checking account. Work hard on convincing him that he can't withdraw from it except the RMD.

What will your dad's social security look like? If he hasn't taken it yet, tell him good job as that may help a LOT.

Given his situation, I would not advise that he pay off the house. In fact I might see if he can refinance with a bank like Third Federal that takes on low-balance refinances. He should be able to sharply reduce his interest rate and get a fairly short term (10 or 15 years) that's still affordable. Once he stops working he will not be able to do this.
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by mhalley »

For fidelity, make sure you go with their Freedom Index Funds, not the regular target date funds. They make them harder to find.
Here is the tickers for a few to consider
Income FIKFX
2020 FPIFX
2025 FQIFX

https://www.fidelity.com/bin-public/060 ... IL_pdf.pdf
Their is absolutely NO REASON not to take SS at 70.
https://www.fool.com/retirement/2018/01 ... ter-a.aspx
. once you turn 70, there's absolutely no reason to delay Social Security any further, so if you've already turned 70 and have yet to file, be sure to get on that right now. Social Security will only pay up to six months' worth of retroactive benefits, so if you're a few months late to the game, you can recover by acting quickly. But if you're already, say, 71, and have yet to start getting benefits, it means you've already given up money needlessly, in which case you'll want to file immediately and stop the bleeding.
Last edited by mhalley on Wed Jul 24, 2019 11:24 am, edited 1 time in total.
barnaclebob
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by barnaclebob »

AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father has ... 97k left on his mortgage at 5.3%.
Rates are much lower now, could he refinance? How is is credit?
URSnshn
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by URSnshn »

OP I'm not an expert on SS, but I believe he will want to take SS at age 70 because I think he could actually lose SS dollars if he waits until after age 70. If he doesn't need the SS money, he can always invest it.

I wondered what his expenses are? Are there some line items that can be reallocated toward savings?

Regarding your question
Is there a better way to allocate this IRA than target retirement date 2025?
maybe a better way might be to have him educate himself - read a couple of the Boglehead's suggested reading and then see what he thinks.


edit for clarity
not4me
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by not4me »

I didn't notice if you said how his IRA is currently invested and/or how closely he monitors it. I mention that to say he may pay closer attention to results once changes are made. Even if the best investment is picked, there could be a loss he isn't "emotionally" ready for. When we age, sometimes our risk tolerance changes (which may be partially why he's now accepting some advice....). So, be prepared & perhaps caution him early on that it won't always go straight up.

How robust is the emergency fund? Could it be pared and/or invested differently?

Perhaps the biggest key will be once RMDs start...that will give him a few more $s than he's been used to. Will it be spent immediately? Or is he willing to invest that? I probably wouldn't put that into the 2025 fund, but it would be good if he could at least put some of that in either a CD ladder, short term bond fund, etc.

Good luck!
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by dbr »

AirTimeMD wrote: Wed Jul 24, 2019 10:45 am
RadAudit wrote: Wed Jul 24, 2019 10:42 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
Could you please identify which risks he wishes to avoid.
He would prefer preservation and slow sustainable growth over 5-10% swings in total value over the next 5-10 years.
Everything in TIPS will guarantee no loss of real value and growth at the real interest rate. The latter is available today in a selection of TIPS maybe maturing in five years, maybe in ten. There is a little bit of risk that when/if you reinvest the real rate is negative which would violate the sustainable growth requirement, but this would probably work. You would note that the value of TIPS varies with the market, so if holding to maturity is not acceptable for the "swings" criterion, then shorter TIPS would work but the growth would be less.

If you accept the criterion that the stock market can drop 50% at any time, no more than 10%-20% in stocks can be accepted. A most conservative of lifecycle or retirement income funds might be fine.

A lot of this depends on whether or not people actually mean what they say about risk. If a 5% swing in total value cannot be tolerated there really aren't any investments that meet that, offer sustainable growth, or even guarantee preserving value after inflation.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by cochlearboy »

AirTimeMD wrote: Wed Jul 24, 2019 11:11 am
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
Just so you are aware - there is absolutely no benefit to waiting until 75 to take SS. :oops:

The increases to the SS benefit that are caused by delaying SS actually stop at 70. Therefore, if your dad waits until 75 to take SS, he will lose out on 5 years of SS that he could otherwise benefited from between 70 and 74.

It sounds like your father's goal is to maximize his SS benefit. If that is the case, then he should delay until 70. One other thing - I want to make sure that your father has been paying SS taxes on his wages over the years. If he is currently (or has been in the past) being paid "under the table" then that may open a can of worms with regards to his eligibility for SS depending on how many years he has been paying SS wage taxes.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by delamer »

AirTimeMD wrote: Wed Jul 24, 2019 11:11 am
jebmke wrote: Wed Jul 24, 2019 10:53 am if is not itemizing on his taxes and deducting the interest on the mortgage, paying it off would be a 5.3% after-tax return, right? That doesn't sound bad to me.
Great point!
White Coat Investor wrote: Wed Jul 24, 2019 11:05 am
AirTimeMD wrote: Wed Jul 24, 2019 10:49 am
White Coat Investor wrote: Wed Jul 24, 2019 10:46 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
This would be the kind of negative and unhelpful feedback I'd like to avoid.

I love him. I obviously am (and would be in any negative event) a safety net for him but the man has far too much pride to accept money from me. I have direct deposited into his bank account, purchased him vehicles, offered to pay off his mortgage, etc. but my father absolutely refuses to be a "dependent". I would imagine that their are other members of this forum that can relate to this obstacle.
I'm just teasing with the "hate" comment. But my point is that he probably isn't limited to just his $120K, especially in the event of terrible economic events. You're NOT going to leave him on the street without food or medical care. He can afford to take a lot more risk than someone with no children by virtue of your economic success. So instead of a 40/60 portfolio, perhaps he can have a 75/25 portfolio. See what I'm saying?

You say he wouldn't accept money, but he's surely going to let you pay for vacations and dinners with him, buy him generous birthday and Christmas gifts etc. There are lots of ways to transfer money to people without making it feel like a handout. I mean even right now you're saving him thousands in financial advisory fees by performing that function for him.
Sorry - I was definitely overly sensitive to the joke. It's a soft spot for me because I wish I could do more. You are spot on about vacations, dinners, gifts, etc. I could ALWAYS do more but I think the major obstacle is that his pride causes him to withdraw when he feels like I am supporting him or doing "more than I should". He's the type of father that will argue with me over me trying to pay a dinner bill. I tried to gift him $14,000 last year and he ripped it up and told me to put it towards the son I am expecting. I agree with your points about him being 'able' to take more risks but I wouldn't have success selling him on that strategy by substantiating it with him being able to use me as a safety net. He would not be agreeable to that in principle.
Tamarind wrote: Wed Jul 24, 2019 11:01 am I think a near-dated TR fund is appropriate. Make sure it's as low expense as you can get. Within two years he'll begin taking RMDs from the tIRA, which are calculated to not deplete the balance during an average lifespan. Set the RMD to be withdrawn automatically to his checking account. Work hard on convincing him that he can't withdraw from it except the RMD.

What will your dad's social security look like? If he hasn't taken it yet, tell him good job as that may help a LOT.

Given his situation, I would not advise that he pay off the house. In fact I might see if he can refinance with a bank like Third Federal that takes on low-balance refinances. He should be able to sharply reduce his interest rate and get a fairly short term (10 or 15 years) that's still affordable. Once he stops working he will not be able to do this.
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
There is no increase in Social Security benefits after age 70. So by delaying until 75, he is simply throwing away 5 years of benefits.
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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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Katietsu »

I think your plan to use the 2025 target date fund is appropriate given the additional details. The fund would be to aggressive for a 69 year old with no possibility of family help, who had already started SS and whose job is at greater risk. The fund might be too conservative if Dad was more comfortable with accepting help in case of a downturn. So, it might be just right.

It is very likely, for the reasons previously outlined, he should be signing up soon for social security. I would guess accepting but not spending his SS for five years would more than double his retirement savings. Have the SS direct deposit to a brokerage account walled off from daily spending.
Last edited by Katietsu on Wed Jul 24, 2019 11:52 am, edited 1 time in total.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by core4portfolio »

jebmke wrote: Wed Jul 24, 2019 10:53 am if is not itemizing on his taxes and deducting the interest on the mortgage, paying it off would be a 5.3% after-tax return, right? That doesn't sound bad to me.
+1
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by hagridshut »

AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father is 69 years old and has never been a net saver. He had money problems based largely in an inability to limit his spending on material items throughout his 30-60s. He currently earns approximately $80k a year and will most likely have to work another 5+ years. The great news is that he works for a very close affluent friend of his and has a very 'easy' job with great security.

My father has seen me make slow and steady investments over the last 10 years of my life and has been impressed with my discipline and results. He has asked me to help him re-structure his investments and has provided me with documents for 2 IRA plans totaling $120,000.
I think the focus on how to invest the $120,000 portfolio should be secondary. 4% withdraw rate means $4800/year or only $400/month. If he is making $80,000/year, his IRA withdrawals are probably going to be small compared to Social Security payments.

What he needs first is a budget plan for his retirement years. I recommend sitting down with him and going over what his monthly retirement income will be, and writing up a plan on how he will pay for all of life's necessities. Figuring all of this out before he retires will give him the confidence and hopefully the discipline to stay financially independent as a retiree.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by abyan »

updated: Never mind, I was looking at the wrong fund.
Last edited by abyan on Wed Jul 24, 2019 1:41 pm, edited 1 time in total.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by White Coat Investor »

AirTimeMD wrote: Wed Jul 24, 2019 11:11 am
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
That's not an option. No point in delaying past 70.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by bloom2708 »

LifeStrategy Income (20/80) is probably the best option.

You can't squeeze blood (income) out of a turnip (small portfolio).

It is scary because there is no solution. Most of us are "fixers". Some things you can't fix.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Tamarind »

White Coat Investor wrote: Wed Jul 24, 2019 12:34 pm
AirTimeMD wrote: Wed Jul 24, 2019 11:11 am
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
That's not an option. No point in delaying past 70.
OP, he should go ahead and claim at age 70, as he will have gotten all the benefit he can from waiting then. Assuming he continues to work after that, he may still get increases to his SS amount. Social Security PIA is calculated using the 35 highest earning years in a person's record. If his salary at age 71 is higher than some past years, then each year when the PIA is recalculated his SS will increase a bit. That will still happen even if he has claimed already.

If $80k is representative of his long term earnings, I would not be surprised if he got ~$30k or a bit more annually of Social Security. The tIRA can add another $5k or so indefinitely. Together you can check his benefit amount online and predict what it will be.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Wiggums »

White Coat Investor wrote: Wed Jul 24, 2019 12:34 pm
AirTimeMD wrote: Wed Jul 24, 2019 11:11 am
He says he does not want to take SS until 75. Great points on the refinancing options not being as available when he retires.
That's not an option. No point in delaying past 70.
I agree
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Watty
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Watty »

If he was ever widowed or divorced after ten years of marriage he may be able to make a restricted application for Social Security on his spouse's Social Security account and collect that until he turns 70 and starts his. They changed this a few years ago but I think he may have been born before the cutoff date for that.

He may be able to make this application retroactive for six months.

It would be good to look at this web site to see what it suggests for a claiming strategy.

https://opensocialsecurity.com/
Last edited by Watty on Wed Jul 24, 2019 1:24 pm, edited 1 time in total.
finite_difference
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by finite_difference »

AirTimeMD wrote: Wed Jul 24, 2019 10:35 am Hi BH,

My father is 69 years old and has never been a net saver. He had money problems based largely in an inability to limit his spending on material items throughout his 30-60s. He currently earns approximately $80k a year and will most likely have to work another 5+ years. The great news is that he works for a very close affluent friend of his and has a very 'easy' job with great security.

My father has seen me make slow and steady investments over the last 10 years of my life and has been impressed with my discipline and results. He has asked me to help him re-structure his investments and has provided me with documents for 2 IRA plans totaling $120,000.

I believe that a great fund to put him in would be the Fidelity Target Date Retirement Fund of 2025. My father cannot afford to risk anything and I feel like this managed fund would be a safe bet for him. I'm making this post selfishly for peace of mind. My father has his emergency fund and 97k left on his mortgage at 5.3%. Is there a better way to allocate this IRA than target retirement date 2025? I welcome anyone's constructive feedback...

Thank you All.
ATD
Why not let your father take on a little risk, like AA of 40/60, with the Bank of Son to step in case the market misbehaves? :)

Edit: I see retirement 2025 is currently about 40/60, so that would just be keeping that same AA fixed.
Last edited by finite_difference on Wed Jul 24, 2019 1:25 pm, edited 1 time in total.
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Godot
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Godot »

abyan wrote: Wed Jul 24, 2019 12:32 pm Others may have mentioned this, but assuming I googled the correct info, Vanguard's target retirement funds have a lower expense ratio than Fidelity's: Fidelity is 0.65% while Vanguard's is 0.13%. That's a difference of 0.52%, or $624 a year, or $6240 over ten years. That's real money. Just make sure to check the cost of the funds -- if you can't afford to lose any of the money, $6240 over ten years is a lot IMHO.
Fidelity Freedom® Index 2025 Fund ER is 0.12%.
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Wiggums
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by Wiggums »

hagridshut wrote: Wed Jul 24, 2019 11:58 am
What he needs first is a budget plan for his retirement years. I recommend sitting down with him and going over what his monthly retirement income will be, and writing up a plan on how he will pay for all of life's necessities. Figuring all of this out before he retires will give him the confidence and hopefully the discipline to stay financially independent as a retiree.
This is very good advice and it applies to all future retirees too.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by sd1357 »

Hi - besides a relatively safe investment which Target Funds tend to be, have you considered loaning him $95K at the lowest possible interest rate permitted by IRS? He can then payoff the mortgage, reduce his monthly expenses and have more net cash to do whatever he wants.
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bengal22
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by bengal22 »

AirTimeMD wrote: Wed Jul 24, 2019 10:49 am
White Coat Investor wrote: Wed Jul 24, 2019 10:46 am
AirTimeMD wrote: Wed Jul 24, 2019 10:35 am My father cannot afford to risk anything
He has a son with $5M and he can't afford to take risk? Do you hate him or something? As near as I can tell, you're the backstop here so he can actually take a lot of risk.
This would be the kind of negative and unhelpful feedback I'd like to avoid.

I love him. I obviously am (and would be in any negative event) a safety net for him but the man has far too much pride to accept money from me. I have direct deposited into his bank account, purchased him vehicles, offered to pay off his mortgage, etc. but my father absolutely refuses to be a "dependent". I would imagine that their are other members of this forum that can relate to this obstacle.
No such thing as no risk. CD's have the risk of not keeping up with inflation. I think the 2025 target fund would be an excellent start. Plus they will rebalance for him. He is young enough to rebound from any market downturn. Good that he is asking for advice. But there is pressure be to managing a relatives assets.
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abyan
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by abyan »

Thanks Godot, I was looking at "Fidelity Freedom® 2025 Fund," that one is more.
inbox788
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by inbox788 »

White Coat Investor wrote: Wed Jul 24, 2019 11:05 amI'm just teasing with the "hate" comment. But my point is that he probably isn't limited to just his $120K, especially in the event of terrible economic events. You're NOT going to leave him on the street without food or medical care. He can afford to take a lot more risk than someone with no children by virtue of your economic success. So instead of a 40/60 portfolio, perhaps he can have a 75/25 portfolio. See what I'm saying?

You say he wouldn't accept money, but he's surely going to let you pay for vacations and dinners with him, buy him generous birthday and Christmas gifts etc. There are lots of ways to transfer money to people without making it feel like a handout. I mean even right now you're saving him thousands in financial advisory fees by performing that function for him.
Last edited by inbox788 on Fri Aug 30, 2019 9:02 pm, edited 1 time in total.
dbr
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by dbr »

inbox788 wrote: Wed Jul 24, 2019 1:56 pm
White Coat Investor wrote: Wed Jul 24, 2019 11:05 amI'm just teasing with the "hate" comment. But my point is that he probably isn't limited to just his $120K, especially in the event of terrible economic events. You're NOT going to leave him on the street without food or medical care. He can afford to take a lot more risk than someone with no children by virtue of your economic success. So instead of a 40/60 portfolio, perhaps he can have a 75/25 portfolio. See what I'm saying?

You say he wouldn't accept money, but he's surely going to let you pay for vacations and dinners with him, buy him generous birthday and Christmas gifts etc. There are lots of ways to transfer money to people without making it feel like a handout. I mean even right now you're saving him thousands in financial advisory fees by performing that function for him.
Completely agree. In OPs shoes, I would be more aggressive and if the portfolio lost money, I'd pay for my "mistake" by making it up. Dad may still be reluctant to accept the funds, but if you sell it as whatever is left over you would get back, he may be more likely to go for it.

The $120k is a small part of dad's retirement plan, and seems like more of an emergency or longevity plan, so a long term outlook is appropriate. As others have suggested, pay more attention to the main income sources in retirement like pension, social security, etc.
An argument is that if income from SS and pensions dwarfs anything from this "small" asset, then the asset is best put in CDs or something similar as an emergency fund to be held aside. The opposite argument based on the OP being the backup is to go all stock and try for some gain and the son will make up the shortfall. There is no clear cut strategy but just different choices that could be made between the OP and his father.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by megabad »

Godot wrote: Wed Jul 24, 2019 1:24 pm
abyan wrote: Wed Jul 24, 2019 12:32 pm Others may have mentioned this, but assuming I googled the correct info, Vanguard's target retirement funds have a lower expense ratio than Fidelity's: Fidelity is 0.65% while Vanguard's is 0.13%. That's a difference of 0.52%, or $624 a year, or $6240 over ten years. That's real money. Just make sure to check the cost of the funds -- if you can't afford to lose any of the money, $6240 over ten years is a lot IMHO.
Fidelity Freedom® Index 2025 Fund ER is 0.12%.
I just wanted to reiterate this point since OP did not specify which Fidelity "Target" Fund. When dealing with Fidelity, the only target fund once should consider is the Fidelity Freedom Index Fund and not the Fidelity Freedom Funds.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by bltn »

Going through this discussion makes me feel bad about your father s circumstances. It makes me think about my wife s cousin who has minimal savings in retirement after a long successful middle class career. She is in worst shape the your father, because she started taking social security payments at age 63. In her mid 70 s, she now walks dogs for residents of her condo building for useful additional income.

I ve dealt with a number of people living on Social Security only. They do get by. That your father has finally expressed some interest to you in money management will make it easier to talk with him about his new budget. That might be the best way to help him now. If he works to 75, all of his Social Security payments for the last five years of his job should go into savings. Additional savings would be good , as he should start getting used to his limited budget before he retires.
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DanMahowny
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by DanMahowny »

You should put your dad into a 100% stock portfolio. He needs growth/gains- the larger, the better. A conservative portfolio isn't going to get it done at his age.

Worst case- the market plummets and your dad loses 70%. This is where you bail him out with a small portion of your $5,000,000.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by 22twain »

Tamarind wrote: Wed Jul 24, 2019 1:11 pmIf $80k is representative of his long term earnings, I would not be surprised if he got ~$30k or a bit more annually of Social Security.
If he's been earning at that level consistently, after adjusting for overall wage growth as SS does in its calculations, he should get more than that. My own "indexed earnings" were mostly in the $60K-$80K range, putting me slightly above the second bend point in the benefit calculation. My spreadsheet and my most recent SS statement agree that I'll get $3,002/month = $36,024/year (plus future COLAs) when I claim my benefit at age 70 a few years from now.
Last edited by 22twain on Wed Jul 24, 2019 3:05 pm, edited 1 time in total.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by mowgli2019 »

Trying to think outside the box since his 5.3% on 97k mortgage will actually lower his returns. And your plan to keep risk low will obviously lower the return. How about you have him refinance his mortgage for a lower rate or even better you pay it off and have him pay you a low interest (bond like investment for you, and will keep his pride). And then pursue an investment thats close to avg market return or a bit lower to keep the risk low. Many have already given ideas for the low risk investment here and also SS will help further.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by mowgli2019 »

sd1357 wrote: Wed Jul 24, 2019 1:32 pm Hi - besides a relatively safe investment which Target Funds tend to be, have you considered loaning him $95K at the lowest possible interest rate permitted by IRS? He can then payoff the mortgage, reduce his monthly expenses and have more net cash to do whatever he wants.
Had the same suggestion but you beat me to it :).
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by fru-gal »

OP,

I haven't had a chance to read all the replies, but about your father's not wanting to accept money from you, you might point out that he presumably supported you for a couple of decades when you were growing up.
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Re: Have no problem managing my $5M portfolio - scared of my Dad's $120k

Post by latak215 »

I wish I had a son like you. You love him with all your heart and so asked this forum. you trust your self putting that where you would for your self at age 69. my vote is also to pay off mortgage, thereby you guys will have $5000 or so more per year to invest. Pretty soon his nest egg would exceed his current 120k Good luck
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