75 year old investing and budgeting in retirement

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
bueller_bueller
Posts: 2
Joined: Tue Jun 30, 2020 11:34 am

75 year old investing and budgeting in retirement

Post by bueller_bueller »

I am a boglehead in my own finances, managed primarily by my spouse, and really appreciate the forum. I am new to trying to manage finances, much less anyone else's. This is my first time posting, and hope it is ok to post on 2 topics: personal investment and budgeting.

Overview:
I am helping a 75 year old family member who is consolidating assets at the moment and will then need to manage them. She is a single female who has some individual stocks that should be sold and put into something less volatile with a low cost basis that still produces income. She is healthy and her life expectancy based on actuarial tables is a little over 13 years, but better to have some buffer, perhaps estimating 18 years (to the age of 93). She rents, and owns one small out-of-state house as a rental property that doesn't generate income that she will be selling, so will likely continue to rent.

Here is her current estimated breakdown of assets:
70,000 Stocks in Synovus, Texas Instruments, First Financial of Virginia, and Microstrategy that were held as physical certificates. We just transferred these to Vanguard, plan to sell them and put them into something else.
90,000 (range: 80,000-100,000) in a rental property that does not generate income, and will likely be sold
60,000 in a Vanguard Rollover IRA Brokerage Account (Traditional IRA): Vanguard Target Retirement 2015 Fund
8000 in cash/savings
60,000 that will be arriving in the next 3 months as a cash settlement in a legal case (that is not taxable)
288,000 = estimate of total assets.

Income:
950/mo in social security
0/year net from rental property (it has not made money in several years)
100/mo from "hobby-style" work
1050/mo = estimated monthly income

Other:
200/mo = RMD is withdrawn from Vanguard IRA

Expenses/Spending/Budgeting:
Her current level of spending is approximately 2900/month, paying about 1600/month in housing and utilities. So, 1850/mo is the gap between her income and spending habits. She has been drawing funds from a legal case as untaxed income over the past 2 years to support this level of spending. Could she maintain her current standard of living with her current assets? I will likely be sharing the necessary "news" that she is already living beyond her means.

Investing and Budgeting Advice I would appreciate:
- Does anyone have advice on tax efficient funds that generate income over her expected life course, but do not risk a lot of volatility?
- When and how should she sell the individual stocks so that they do not generate a serious tax burden, but also in a way that protects against potential future volatility/losses?
- Once she has these assets consolidated into a set of accounts, how much income per month could she safely withdraw (in general terms) to augment social security?
- Should she consider purchasing a small house with these assets? In her market, smaller houses run around 150-200,000. Alternatively, rent is about 1200-1400/month.
- How much money should she set aside for future medical care?
- Might she have enough funding to consider moving into a retirement community that has assisted living services if/when she needs them?

Thank you so much, everyone. I will be happy to revise/update this with any information that would be helpful.
Last edited by bueller_bueller on Tue Nov 23, 2021 11:52 am, edited 1 time in total.
britcoal
Posts: 31
Joined: Fri Mar 14, 2014 5:45 pm

Re: 75 year old investing and budgeting in retirement

Post by britcoal »

$288,000 assets spent over 13 years gets her pretty close to the needed $1850/month extra on top of SS and hobby income. That's with zero growth (but doesn't account for inflation). It's definitely a tight situation and 18yrs is much worse but it doesn't look like the end of the world. I'd ditch the rental immediately and put everything in an AA that she is comfortable with (50/50?).. and tighten the belt.

On the other hand, immediateannuities.com gives me $1860/month for life if she put all of the 288,000 into an immediate annuity.. Something to consider (of course that also does not account for inflation).
User avatar
Wiggums
Posts: 4484
Joined: Thu Jan 31, 2019 8:02 am

Re: 75 year old investing and budgeting in retirement

Post by Wiggums »

She can pull $960/month from the portfolio (4% annually) without much risk. That is in addition to the $1050 income. $2,010/month is what she is working with. It’s not clear if the extra spending is necessary or not. Belt tightening a little might get you closer to a reasonable spending level.

A rental property with no income should be sold. Why would she consider buying a house when she already has a rental house to live in?
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
Topic Author
bueller_bueller
Posts: 2
Joined: Tue Jun 30, 2020 11:34 am

Re: 75 year old investing and budgeting in retirement

Post by bueller_bueller »

Thanks so much. She can't live in the house because it is in a different state than her current residence. I appreciate the feedback!
delamer
Posts: 12724
Joined: Tue Feb 08, 2011 6:13 pm

Re: 75 year old investing and budgeting in retirement

Post by delamer »

Consider putting 10 years of net expenses in cash equivalents and the remainder into a S&P 500 fund for a bit of growth.

Look into the Medicaid regulations in her state and the cost of assisted living facilities. The best situation is to be able to pay for a couple years of care from her own assets, at which point Medicaid may step in. That’s why it’s important to understand her state’s regulations.

You can use the TaxCaster app to estimate how much of a tax impact there would be from seliing her stocks. She’ll owe taxes on the difference between the selling price and the cost basis. Make sure you have good basis information on the physical shares.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
Mike Scott
Posts: 2084
Joined: Fri Jul 19, 2013 2:45 pm

Re: 75 year old investing and budgeting in retirement

Post by Mike Scott »

Is this one of the circumstances that an SPIA works?
User avatar
Sandtrap
Posts: 14726
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: 75 year old investing and budgeting in retirement

Post by Sandtrap »

Mike Scott wrote: Tue Nov 23, 2021 8:15 pm Is this one of the circumstances that an SPIA works?
Perhaps partially if at all.
At age 75 and with the current level of assets, future (near or far) health care costs, in home care, etc, can skyrocket expenses so there has to be access to that (vs an SPIA locks in everything to a fixed) as "delamer" points out (10x in cash "like").

Currently, an SPIA would yield 1860/month on the entire 288k which is close but doesn't meet the annual expenses of the OP.
If there are lumpy (future health care, etc, black swans, etc) expenses, then there will be none to cover that.

The "elephant in the room" here is "age 75" and so forth.

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
Sandtrap
Posts: 14726
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: 75 year old investing and budgeting in retirement

Post by Sandtrap »

bueller_bueller wrote: Mon Nov 22, 2021 10:58 pm I am a boglehead in my own finances, managed primarily by my spouse, and really appreciate the forum. I am new to trying to manage finances, much less anyone else's. This is my first time posting, and hope it is ok to post on 2 topics: personal investment and budgeting.

Overview:
I am helping a 75 year old family member who is consolidating assets at the moment and will then need to manage them.

She is a single female who has some individual stocks that should be sold and put into something less volatile with a low cost basis that still produces income. She is healthy and her life expectancy based on actuarial tables is a little over 13 years, but better to have some buffer, perhaps estimating 18 years (to the age of 93). She rents, and owns one small out-of-state house as a rental property that doesn't generate income that she will be selling, so will likely continue to rent.

Here is her current estimated breakdown of assets:
70,000 Stocks in Synovus, Texas Instruments, First Financial of Virginia, and Microstrategy that were held as physical certificates. We just transferred these to Vanguard, plan to sell them and put them into something else.
90,000 (range: 80,000-100,000) in a rental property that does not generate income, and will likely be sold
60,000 in a Vanguard Rollover IRA Brokerage Account (Traditional IRA): Vanguard Target Retirement 2015 Fund
8000 in cash/savings
60,000 t
hat will be arriving in the next 3 months as a cash settlement in a legal case (that is not taxable)
288,000 = estimate of total assets.

Income:
950/mo in social security
0/year net from rental property (it has not made money in several years)
100/mo from "hobby-style" work
1050/mo = estimated monthly income

Other:
200/mo = RMD is withdrawn from Vanguard IRA

Expenses/Spending/Budgeting:
Her current level of spending is approximately 2900/month, paying about 1600/month in housing and utilities. So, 1850/mo is the gap between her income and spending habits. She has been drawing funds from a legal case as untaxed income over the past 2 years to support this level of spending. Could she maintain her current standard of living with her current assets? I will likely be sharing the necessary "news" that she is already living beyond her means.

Investing and Budgeting Advice I would appreciate:
- Does anyone have advice on tax efficient funds that generate income over her expected life course, but do not risk a lot of volatility?
- When and how should she sell the individual stocks so that they do not generate a serious tax burden, but also in a way that protects against potential future volatility/losses?
- Once she has these assets consolidated into a set of accounts, how much income per month could she safely withdraw (in general terms) to augment social security?
- Should she consider purchasing a small house with these assets? In her market, smaller houses run around 150-200,000. Alternatively, rent is about 1200-1400/month.
- How much money should she set aside for future medical care?
- Might she have enough funding to consider moving into a retirement community that has assisted living services if/when she needs them?

Thank you so much, everyone. I will be happy to revise/update this with any information that would be helpful.
Notes and points and considerations: (and rough back of the envelope with a charcoal pencil estimated numbers).

0. Sell rental property asap. Pay taxes on it. Review insurance coverage no longer needed (reduce rates).
1. Income from the "hobby style" work exists for now but is uncertain going forward so should not be in the mix as a "solid" thing unlike SS.
2. The 70,000k in individual stocks can be "lump sum"ed into something like the "Vanguard Balanced Index Fund" for simplicity, low cost, "self balancing", and also keeps things simple for estate planning (seek legal counsel for estate planning which should integrate with the financial strategy).
2b. Add the proceeds from the rental property sale into the above (but how much to leave in "cash like" is discussed below).
3. As "delamer" points out, there needs to be more than ample "cash like" reserves to cover future "lumpy expenses" IE: health care, etc. which can be very high and unpredictable, and an eventual certainty.
4. Your 288,000 of "total assets" at a 4% annual withdrawal rate (baseline only) yields 11500/year, or 960/month which if added to the SS at 950/mo is a monthly income of 1910/mo. (not relying on "hobby income").
This is from the "entire" "total asset" number you quote and it's a good idea to set aside a % of it where there is; security of principle, liquidity, and accessibility.
However, even if 5 years of expenses, that reduces the 1150/year yield from the 288k total.
This is something that you need to figure out as a comfort "safety zone". What matters is what works for you, not others.
*so to answer your question, 4% annually to withdraw from the consolidated amount invested to augment SS. It will be less than 1150/mo.
5. Rent. Don't buy.
6. How much to set aside for future medical care is the "elephant in the room for age 75 and with these "assets vs income". As noted in #4 above.
7. Questions:
a) Is there a way to lower housing costs? Other costs? (you state currently spending "1600/mo in housing and expenses".
b) Can you contact various agencies for housing assistance, etc?

8. Notes and comments:
a) I would not put much stock into "actuarial tables".
b) Financial and personal "black swans" do happen and more frequently sometimes with age and stages of life. Plan.
c) Seek legal counsel for estate planning.
d) From certain points of view, just looking at the "numbers" as "total assets", there can seem to be a lot of $$$, but often, very often, it is not so.
e) Consult with a CPA or her "tax person" on how best to structure things, also convert the individual stocks, for best tax advantage.

f)** reread and print out "delamer"s excellent points above.

I hope this is helpful to you.
PM me as you wish.
j :D

dis laimer: there are zillions of paths and opinonions on zillions of things by zillions of people. This is just one.
Wiki Bogleheads Wiki: Everything You Need to Know
Post Reply