Should I set up a retirement account for my 64yo mother with no savings?

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afoolwithmoney
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Should I set up a retirement account for my 64yo mother with no savings?

Post by afoolwithmoney » Tue Jan 14, 2020 12:07 pm

My mother is 64 and has no savings (well <$10,000), but luckily she has a pension that's covering her monthly expenses. She plans to take social security when she's 66 (waiting because she has 2 more years of the sale of a business).My income is pretty good so I was thinking I could help fund at least a small retirement fund for her, and I'm hoping she can contribute as well with some better budgeting. Should we set up some tax sheltered investment account at this point? Or is it too late?

livesoft
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by livesoft » Tue Jan 14, 2020 12:11 pm

If you have a taxable account, then you already have set up a retirement account for your mother. You can give her appreciated shares any time you want to and she can sell them. If I read between the lines, then she would pay no capital gains taxes on the sale. If it turns out that her pension and SS income is so high that she would pay capital gains taxes, then she doesn't need your gift.
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PaulF
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by PaulF » Tue Jan 14, 2020 12:36 pm

afoolwithmoney wrote:
Tue Jan 14, 2020 12:07 pm
Should we set up some tax sheltered investment account at this point?
How much is she paying in taxes now?

wolf359
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by wolf359 » Tue Jan 14, 2020 12:44 pm

afoolwithmoney wrote:
Tue Jan 14, 2020 12:07 pm
My mother is 64 and has no savings (well <$10,000), but luckily she has a pension that's covering her monthly expenses. She plans to take social security when she's 66 (waiting because she has 2 more years of the sale of a business).My income is pretty good so I was thinking I could help fund at least a small retirement fund for her, and I'm hoping she can contribute as well with some better budgeting. Should we set up some tax sheltered investment account at this point? Or is it too late?
A retirement account of less than $10,000 is effectively a savings account.

If you want to use a retirement account to generate income, every $25 generates $1 of annual income. Put another way, every $300 generates $1 of monthly income. So $10,000 of retirement savings will produce $400 of annual income, or $33 of monthly income. With asset levels less than $10,000, she should just save it for when she has a bigger ticket expense that won't be covered by her pensions or Social Security.

If you gift her money, you probably need a significant amount to make an appreciable dent in her financial status. Gifting her $12,000 only increases her monthly income stream by $40.

Instead, I would encourage her to defer applying for Social Security until age 70, and gift her enough money for those extra 4 years to help support her while she is waiting. Her income will increase by 8% every year beyond FRA that she waits. This magnifies the assistance money that you're providing, because it is converted into an inflation adjusted income stream that she cannot outlive. The same $12,000 might supplement her income by an additional $1,000/month for 12 months. That simple assistance then lets her wait one more year to file, boosting her Social Security income permanently. Repeat this over a 4 year period, and you will have helped her significantly.

Since she is going to be living off of Social Security and pensions with virtually no savings backstop, you can also assist her with gifts from time to time if she has unexpected big expenses (like replacing an appliance home repairs or a car.) (Wait until the expense happens.)

Both these strategies (especially in combination) take considerably less money than building her retirement accounts to a sufficient level.

P.S. Please note that I am making up the numbers, and "spending" your gift money willy-nilly. You need to adjust the numbers based on her actual needs, and your ability to assist.
Last edited by wolf359 on Tue Jan 14, 2020 1:26 pm, edited 1 time in total.

Jack FFR1846
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by Jack FFR1846 » Tue Jan 14, 2020 1:01 pm

She's covering here expenses with an existing pension.

She plans to take social security in 2 years. So this becomes extra, not needed money. This could be saved in a "retirement account".

I don't see where she needs help from you or for some outside account. It sounds like she could give you some money out of her "not needed" social security checks, when they start. Or maybe she should consider waiting until she's 72 to start taking social security for the much bigger payout.
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Spirit Rider
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by Spirit Rider » Tue Jan 14, 2020 1:09 pm

She would need compensation in order to contribute to an IRA. As already asked what are these high marginal ordinary income tax rates where she needs or could benefit from any tax deferral. If she has money coming in from the sale of a business that is very likely subject to capital gains taxes. Whatever you or she does, do NOT fall for any snake oil salesman selling Variable Annuities or even worse Fixed-Index Annuities.

@livesoft and @wolf359 gave you good suggestions. Combine them and you have the best option. For every year you are able to supplement her pension and/or money from the sale of the business and delay her collecting, her future SS benefits will increase by 8%.

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Stinky
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Re: Should I set up a retirement account for my 64yo mother with no savings?

Post by Stinky » Tue Jan 14, 2020 4:07 pm

wolf359 wrote:
Tue Jan 14, 2020 12:44 pm

I would encourage her to defer applying for Social Security until age 70, and gift her enough money for those extra 4 years to help support her while she is waiting. Her income will increase by 8% every year beyond FRA that she waits. This magnifies the assistance money that you're providing, because it is converted into an inflation adjusted income stream that she cannot outlive.
I like this idea.

OP indicates that her mother is making it now on her pension. If the mother runs short of money between now and mom’s age 70, that would be a good time to gift mom some money.
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