Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
undefined
Posts: 4
Joined: Mon Dec 23, 2019 11:37 am

Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by undefined »

This is a bit of a multi-pronged question. One aspect is about an appropriate asset allocation for an 80 year old with a windfall, and the other part is about how to best manage it, either help him implement the plan myself, or recommend he use Vanguard PAS.

Background:
My now 80 year old father-in-law became a widower a few years ago. My mother-in-law had handled their finances, and he's always been a bit disinterested in finance. He sold his house this year and has moved in with my sister-in-law and her partner. Due to the house sale he now has a windfall of $1.2M after taxes, which is almost 15x-ing his liquid net worth. He asked me to look over the portfolio his Ameriprise advisor (sigh) put together, and I was very frustrated to see an overly complex portfolio that called itself "conservative", but had higher volatility than the S&P 500. Not very appropriate for a senior citizen on lower fixed income. I then dug into his existing IRAs and saw that they were in similarly risky assets, but with a 2.5% average expense ratio :oops:.

After having a group phone call with his advisor and hearing them panic and unable to answer my basic questions about "why are most of these 'safe bond funds' BBB or lower" and also admitting "well if he had these other funds how would I make money?", my father-in-law and the rest of the family got on board with firing his advisor and going to Vanguard. I'm taking the lead on this, and have a few ideas bouncing around that I'd love to get some perspective on. First some numbers:

Accounts:

Trad IRA: $53
Roth IRA: $25k
Savings Accounts from House Sale: $200k (after capital gains from sale)
Ameriprise brokerage from house sale: $1M (fortunately I got this into a "no fee" account for now while we transition).

Income:
Fixed income from RMDs + Pensions + SS: $45k.

Expenses:
Honestly am not entirely sure, but assume it's about the same as his income. He has simple tastes and takes public transit. I imagine medical bills will be his largest expense. Now that he has this windfall he could definitely choose to increase his income and buy some nicer scotch :happy.

Options:
First of all, I think it could make sense to just keep 3-5 years of expenses in cash available in the high yield savings account. It may not be the most efficient, but giving my FIL the ability to withdraw money without having to worry about the investment accounts is attractive. I'm hoping it would also give him some cushion for unexpected medical bills. It may not be the most efficient, but it could end up being easier logistically.

Option 1: Put him in a life strategy fund—probably the moderate growth (60/40) or the conservative growth (40/60). I like this for its simplicity and the set and forget nature. We'd also move his IRA and Roth IRA over and put them in the same fund.

Option 2: A 3-fund portfolio targeting an overall 60/40 equity/bond allocation. What I like about this is that it could provide some big tax loss harvesting opportunities this year to potentially lower his capital gains on the home sale. He's in California, so the savings could be significant. On the flip side this is a bit more complicated, and I think I'd need to be more involved to help him manage it.

Option 3: Work with Vanguard PAS to get him into a 3/4-fund portfolio, and have them help manage it for him. I could see them helping with TLH, income flow, and potentially converting the Trad IRA to a Roth IRA efficiently. I don't have the time or energy to do this level of management for him :D. I think he'd value having someone he could call, though as far as I know he has never cared much about contacting his financial advisor outside of getting documents for his accountant.

Other notes:
- I've read through https://www.bogleheads.org/wiki/Managing_a_windfall.
- I've searched through various posts around windfalls, investing for people in their 80s, and Vanguard PAS

Would love to hear Options 4 to N if people have them, or other perspectives on financial considerations for someone in his situation. Thank you in advance!
User avatar
David Jay
Posts: 10477
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by David Jay »

Option 1 - but no more aggressive than Conservative Growth (40/60). Even LS Income (20/80) would be acceptable.

60/40 is "freak-out" level for an 80 year old with no experience managing his own portfolio.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
bertilak
Posts: 8302
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by bertilak »

If your father is 80 you must also be getting up in years so I suggest not taking on too much responsibility. You must have other responsibilities to take care of or interests to pursue. This leads me to favor the PAS option.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
BroIceCream
Posts: 418
Joined: Tue Oct 30, 2018 11:31 pm
Location: California

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by BroIceCream »

David Jay wrote: Tue Apr 06, 2021 4:46 pm Option 1 - but no more aggressive than Conservative Growth (40/60). Even LS Income (20/80) would be acceptable.

60/40 is "freak-out" level for an 80 year old with no experience managing his own portfolio.
+1; If [my mom] was in this situation- I'd due the LS fund with the lower ratio. If current income is meeting expenses, then the LS fund would provide a permanently "rebalanced" and simplified way to invest the remaining, and the amount would provide the "emergency" fund, even during a multi-year equity downturn.
000
Posts: 4771
Joined: Thu Jul 23, 2020 12:04 am

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by 000 »

Could consider Target Retirement Income as well. It contains an allocation to TIPS while the LifeStrategy funds do not.

Also has a 30/70 allocation which in IMO is more reasonable than 20/80, which feels stock-light.
Last edited by 000 on Tue Apr 06, 2021 5:25 pm, edited 1 time in total.
UpperNwGuy
Posts: 4977
Joined: Sun Oct 08, 2017 7:16 pm

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by UpperNwGuy »

I would go with Option 1, the Life Strategy Conservative Growth Fund. Simplicity rules.
User avatar
David Jay
Posts: 10477
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by David Jay »

Per “000” above, TR Income is a reasonable choice as well. So, following my recommendation not to exceed 40% equities, here are 3 good choices at 3 different asset allocations:

40/60 LS Conservative Growth
30/70 TR Income
20/80 LS Income
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Dick D
Posts: 180
Joined: Sat Jun 16, 2007 8:55 am
Location: North Carolina

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by Dick D »

I would use PAS which I have been using since turning 75.
123
Posts: 7086
Joined: Fri Oct 12, 2012 3:55 pm

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by 123 »

I would recommend Vanguard LifeStrategy Moderate Growth at 60/40. It's cheaper than PAS and if he has everything in a single fund he get automatic free rebalancing without any tax consequence!
The closest helping hand is at the end of your own arm.
dbr
Posts: 35333
Joined: Sun Mar 04, 2007 9:50 am

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by dbr »

The first question is what does he want to do with his money. You can hardly answer how he might be invested if no one knows what the purpose of the investments is.

Also, the first issue would be his need or desires for income. RMDs are not income, but the pension and Social Security are. What does he want to spend money on?

A third question is that as soon as you arrive at statements worded like "investments to put him in" where do you stand on getting durable POA and full account authorizations to manage his investments for him. How far do you need to go enabling him to have money to spend? You stated some concern over how to arrange that. Does he need a checking account on which someone has POA to make sure the money he needs is there. Presumably the pension and SS are direct deposited there so why do you think he needs several years in cash given that he is living with a daughter?

My experience with financially naive older people is that investing is the smaller part of concerns, but maybe this is beyond the actual issues.
illumination
Posts: 1345
Joined: Tue Apr 02, 2019 6:13 pm

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by illumination »

I would do PAS even though I think they provide very little value. It's just too abrupt a change in his situation to self-manage and it's something of an insurance policy if we enter a bear market.

I'd tread very carefully when it comes to money management and in-laws.
Topic Author
undefined
Posts: 4
Joined: Mon Dec 23, 2019 11:37 am

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by undefined »

dbr wrote: Wed Apr 07, 2021 8:57 am The first question is what does he want to do with his money. You can hardly answer how he might be invested if no one knows what the purpose of the investments is.

Also, the first issue would be his need or desires for income. RMDs are not income, but the pension and Social Security are. What does he want to spend money on?

A third question is that as soon as you arrive at statements worded like "investments to put him in" where do you stand on getting durable POA and full account authorizations to manage his investments for him. How far do you need to go enabling him to have money to spend? You stated some concern over how to arrange that. Does he need a checking account on which someone has POA to make sure the money he needs is there. Presumably the pension and SS are direct deposited there so why do you think he needs several years in cash given that he is living with a daughter?

My experience with financially naive older people is that investing is the smaller part of concerns, but maybe this is beyond the actual issues.
There are a lot of great insights in this comment, thank you! His daughter does have POA and could help him if need be—I definitely do not think it would be appropriate (or desirable!) for me to handle the overall logistics. He's actually quite technically literate and already handles his online banking just fine. I could see him transferring distributions from Vanguard to his bank account pretty easily, and worst case scenario his daughter can help out with it. I could see him being nervous about selling shares himself though, or even looking at such a big number in his account compared to what he's used to :D. I think one of the ideas about having a larger sum in a savings account is that he would mainly interface with that account and could keep the investments out of sight and out of mind for most of the year. Up to him of course!

Given your thoughts and everyone else's (thank you everyone!) I think PAS is the right way to go. The advisor can ask him these questions and help execute on his account for him. I can tag along for the initial few calls with PAS and make sure to ask the questions he may not know to ask, and help him feel comfortable that he's not getting into another Ameriprise situation. Worst case scenario if his situation changes in the next few years we can reassess.
dbr
Posts: 35333
Joined: Sun Mar 04, 2007 9:50 am

Re: Self-managed 3 Fund or Life Strategy vs Vanguard PAS for 80 year old

Post by dbr »

undefined wrote: Wed Apr 07, 2021 3:45 pm
dbr wrote: Wed Apr 07, 2021 8:57 am The first question is what does he want to do with his money. You can hardly answer how he might be invested if no one knows what the purpose of the investments is.

Also, the first issue would be his need or desires for income. RMDs are not income, but the pension and Social Security are. What does he want to spend money on?

A third question is that as soon as you arrive at statements worded like "investments to put him in" where do you stand on getting durable POA and full account authorizations to manage his investments for him. How far do you need to go enabling him to have money to spend? You stated some concern over how to arrange that. Does he need a checking account on which someone has POA to make sure the money he needs is there. Presumably the pension and SS are direct deposited there so why do you think he needs several years in cash given that he is living with a daughter?

My experience with financially naive older people is that investing is the smaller part of concerns, but maybe this is beyond the actual issues.
There are a lot of great insights in this comment, thank you! His daughter does have POA and could help him if need be—I definitely do not think it would be appropriate (or desirable!) for me to handle the overall logistics. He's actually quite technically literate and already handles his online banking just fine. I could see him transferring distributions from Vanguard to his bank account pretty easily, and worst case scenario his daughter can help out with it. I could see him being nervous about selling shares himself though, or even looking at such a big number in his account compared to what he's used to :D. I think one of the ideas about having a larger sum in a savings account is that he would mainly interface with that account and could keep the investments out of sight and out of mind for most of the year. Up to him of course!

Given your thoughts and everyone else's (thank you everyone!) I think PAS is the right way to go. The advisor can ask him these questions and help execute on his account for him. I can tag along for the initial few calls with PAS and make sure to ask the questions he may not know to ask, and help him feel comfortable that he's not getting into another Ameriprise situation. Worst case scenario if his situation changes in the next few years we can reassess.
He can arrange to have Vanguard or most any broker sell assets and send him a regular cash deposit every month if that is convenient and helpful.
Post Reply