Help my mom- Inheriting $500k+

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jt13
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Help my mom- Inheriting $500k+

Post by jt13 »

All,

My grandfather passed away last week at 87 years old. My mother is the sole beneficiary of his estate. I am trying to get her started on the right path. The estate consists of his home ($200k), a checking account ($300k), and several life insurance annuities ($350k that pay $2200/mo). I have already contacted the attorney that did his will, a certified financial planner, and all of the various insurance companies involved. I hit a real roadblock with the CFP when they laid out their fee structure: 1% of all household assets annually for active management or $5k for bi-annual meetings/advice with no management.

She has ZERO financial knowledge and understanding. My grandfather paid all her bills, bought her house, bought her cars, etc. She has only ever worked part-time at various local supermarkets. As noted below, she still owns the house we grew up in and manages it as a rental property. She currently has health insurance through her job and does some baby sitting on the weekends for extra cash. I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement. She only plans on working until age 65 when she qualifies for Medicare. The below information is her current situation:


Emergency funds: $20k cash

Debt: $80k mortgage on rental property/second home (worth about $200k).

Tax Filing Status: (Single)

Tax Rate: 12% Federal (Income +/- $30k)

State of Residence:PA

Age:62

Investments: $25k in 401k

ADVICE??
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vineviz
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Re: Help my mom- Inheriting $500k+

Post by vineviz »

jt13 wrote: Thu Sep 22, 2022 6:27 am I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement. She only plans on working until age 65 when she qualifies for Medicare. The below information is her current situation:
Will she ever qualify for Social Security benefits? If so, how much?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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JoeRetire
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Re: Help my mom- Inheriting $500k+

Post by JoeRetire »

jt13 wrote: Thu Sep 22, 2022 6:27 am My grandfather passed away last week at 87 years old.
Sorry for your loss.
I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement.
Consider a SPIA.
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Leesbro63
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Re: Help my mom- Inheriting $500k+

Post by Leesbro63 »

JoeRetire wrote: Thu Sep 22, 2022 6:41 am
jt13 wrote: Thu Sep 22, 2022 6:27 am My grandfather passed away last week at 87 years old.
Sorry for your loss.
I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement.
Consider a SPIA.
If grandpa was 87 and the OP (grandson) is old enough to post here intelligently, mom is probably 60-65. So some sort of single premium immediate annuity (SPIA) might indeed be a solution. We started this route with my own mother, now 86, when she was about 70. Purchased an annuity in three installments about 3 years apart each. She has longevity in her family so this has worked well, so far. One annuity even has a full inflation kicker...you can't buy those types of annuities today.

EDIT: I just reread and see mom is 62. <smacking myself, but also amused that I got it right>
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jt13
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

vineviz wrote: Thu Sep 22, 2022 6:38 am
jt13 wrote: Thu Sep 22, 2022 6:27 am I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement. She only plans on working until age 65 when she qualifies for Medicare. The below information is her current situation:
Will she ever qualify for Social Security benefits? If so, how much?
She is currently receiving a survivors benefit from the death of my father of $1729/mo before deductions

As opposed to the annuity route, is there any benefit to a Vanguard funds with automatic withdrawals set up?
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JoeRetire
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Re: Help my mom- Inheriting $500k+

Post by JoeRetire »

jt13 wrote: Thu Sep 22, 2022 6:57 am As opposed to the annuity route, is there any benefit to a Vanguard funds with automatic withdrawals set up?
The obvious benefit is that some of the funds might remain for her heirs once she passes.

The tricky part is how much can be automatically withdrawn in order to make sure it still lasts for the rest of her life. Almost certainly it will be less than the amount provided by the SPIA.
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HomeStretch
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Re: Help my mom- Inheriting $500k+

Post by HomeStretch »

Sorry for your loss.

Have you determined how each of your grandfather’s assets passes to your mother? The assets may pass by beneficiary designation or, in the absence of beneficiary designations, by the terms of his Will. The Executor of the Will will handle the distribution of assets by Will - do you know who that is? For assets that pass by beneficiary designation, the Beneficiary, your mom, or her legal representative usually works directly with the asset custodian. Has your mother granted you legal authority to act on her behalf under a Power of Attorney (POA) to help with the inherited asset transfers and, longer term, handling her financial matters like bill paying that your grandfather was previously handling?

As far as setting up an account to receive the assets and annuity income, consider setting up a Taxable brokerage account at Fidelity or Schwab. I personally would avoid Vanguard these days for new accounts given their customer service issues, lengthy processing times, lack of a cash management account and no local offices. It can be helpful to choose a brokerage with a local office that can provide signature guarantees/notarizations or to assist your mom if you are not available to help her. During the account set-up, your mom can also set up her authorized agent. You may also want to set up a cash management account (CMA) to handle Bill Pay. Either the Taxable account or CMA can receive direct deposits (annuity payment, SS benefits) and have a recurring transfer set up to your mother’s local bank (assuming she uses one). Either account can also have an ATM/debit card and checkbook for withdrawals if your mom doesn’t have a local bank.

As far as investments go, once your mom has determined her desired asset allocation, consider using one fund such as a Fidelity Freedom Index Fund which automatically rebalances.

If your grandfather’s estate attorney is trusted and practices in your mom’s estate, now may be a good time for your mom to make sure her estate planning is up-to-date: Will, durable POA for financial matters, healthcare authorized rep/advance directives and appropriate account beneficiaries.

Consider also who will handle your mom’s income tax filings, insurance matters, etc. If she currently isn’t handling them.

Do your best to get your mom up-to-spend on the basics of handling her financial matters. Try to keep her banking and investments as simple as possible even if it means sacrificing optimizing. If you will be handling her financial matters now, try to simplify/automate as much as possible.
For example, online bill pay with e-bill/auto-pay, minimize financial accounts and credit cards, get the POAs on file with financial institutions, set up online accounts with utilities/banks/brokerages/insurers, etc. Be sure there are online accounts set up for SSA, Medicare, IRS and any state tax authority as you need these to do even simple things like changing the direct deposit instructions for SS benefits. If you have to deal with these agencies directly, they usually have their own authorized agent processes which can take time to establish.

Best of luck.
Last edited by HomeStretch on Thu Sep 22, 2022 7:33 am, edited 2 times in total.
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vineviz
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Re: Help my mom- Inheriting $500k+

Post by vineviz »

jt13 wrote: Thu Sep 22, 2022 6:57 am
vineviz wrote: Thu Sep 22, 2022 6:38 am
jt13 wrote: Thu Sep 22, 2022 6:27 am I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement. She only plans on working until age 65 when she qualifies for Medicare. The below information is her current situation:
Will she ever qualify for Social Security benefits? If so, how much?
She is currently receiving a survivors benefit from the death of my father of $1729/mo before deductions

As opposed to the annuity route, is there any benefit to a Vanguard funds with automatic withdrawals set up?
The main benefit of setting up a brokerage account with automatic withdrawals is that it will provide more liquidity for unexpected expenses. For instance, what if you mom needs to replace her car? Or buy a new HVAC system for either of her properties?

The annuity income can be a big plus for someone with limited means and/or limited financial knowledge, but your mom already has $4,000 a month in annuity income + whatever the rental property generates. On the other hand, she only has $45k in "liquid" reserves right now which doesn't seem like much.

How much additional monthly income do you estimate your mom would need to draw from the portfolio (let's call it $500k for now)?
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HMSVictory
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Re: Help my mom- Inheriting $500k+

Post by HMSVictory »

Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
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MattB
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Re: Help my mom- Inheriting $500k+

Post by MattB »

HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Suggest you compare what she would receive from an SPIA, on an annual basis, to what she would be able to pull from her assets as directed above, at 4% per year.

The benefit of an SPIA is that it provides, for all intents and purposes, guaranteed payments for life. That is, your mom wouldn't outlive her money. The detractions, as noted earlier in the thread, include that she would lose access to her reserves (liquidity), and that you won't inherit anything off of an SPIA. Speaking pragmatically, I would be more concerned with my mom outliving her assets, if she were in your mom's shoes, than I would be with inheriting anything.

To your core question: You can certainly set up a single fund at vanguard with an automated transfer to your mom's bank account. The questions, really, are whether your mom might be better served by investing some or most of her assets in an SPIA, and at what age.The answer to those questions might change as she gets older.
Last edited by MattB on Thu Sep 22, 2022 8:13 am, edited 3 times in total.
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jt13
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

HomeStretch wrote: Thu Sep 22, 2022 7:26 am Sorry for your loss.

Have you determined how each of your grandfather’s assets passes to your mother? The assets may pass by beneficiary designation or, in the absence of beneficiary designations, by the terms of his Will. The Executor of the Will will handle the distribution of assets by Will - do you know who that is? For assets that pass by beneficiary designation, the Beneficiary, your mom, or her legal representative usually works directly with the asset custodian. Has your mother granted you legal authority to act on her behalf under a Power of Attorney (POA) to help with the inherited asset transfers and, longer term, handling her financial matters like bill paying that your grandfather was previously handling?

The annuities will pass by beneficiary designation. Mom is the executrix of the estate as well as the sole named beneficiary in his will. I am not the POA, just assisting her and providing guidance.

As far as setting up an account to receive the assets and annuity income, consider setting up a Taxable brokerage account at Fidelity or Schwab. I personally would avoid Vanguard these days for new accounts given their customer service issues, lengthy processing times, lack of a cash management account and no local offices. It can be helpful to choose a brokerage with a local office that can provide signature guarantees/notarizations or to assist your mom if you are not available to help her. During the account set-up, your mom can also set up her authorized agent. You may also want to set up a cash management account (CMA) to handle Bill Pay. Either the Taxable account or CMA can receive direct deposits (annuity payment, SS benefits) and have a recurring transfer set up to your mother’s local bank (assuming she uses one). Either account can also have an ATM/debit card and checkbook for withdrawals if your mom doesn’t have a local bank.

As far as investments go, once your mom has determined her desired asset allocation, consider using one fund such as a Fidelity Freedom Index Fund which automatically rebalances.

If your grandfather’s estate attorney is trusted and practices in your mom’s estate, now may be a good time for your mom to make sure her estate planning is up-to-date: Will, durable POA for financial matters, healthcare authorized rep/advance directives and appropriate account beneficiaries.

Thats good advice, thank you

Consider also who will handle your mom’s income tax filings, insurance matters, etc. If she currently isn’t handling them.

This will be a hurdle, CPA shopping as well

Do your best to get your mom up-to-spend on the basics of handling her financial matters. Try to keep her banking and investments as simple as possible even if it means sacrificing optimizing. If you will be handling her financial matters now, try to simplify/automate as much as possible.
For example, online bill pay with e-bill/auto-pay, minimize financial accounts and credit cards, get the POAs on file with financial institutions, set up online accounts with utilities/banks/brokerages/insurers, etc. Be sure there are online accounts set up for SSA, Medicare, IRS and any state tax authority as you need these to do even simple things like changing the direct deposit instructions for SS benefits. If you have to deal with these agencies directly, they usually have their own authorized agent processes which can take time to establish.

Best of luck.

THANKS
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jt13
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Are there any tax considerations or implications with this strategy? Anything more than income taxes on realized gains on the stock sales?

She has applied for SS but can only receive either the survivors benefit OR her benefit. Currently the survivor benefit is the higher of the two
JeanneForever
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Re: Help my mom- Inheriting $500k+

Post by JeanneForever »

Sorry for your loss.

I can't tell if you have a good handle on her expenses or not. Your questions are how to get income, but do you know what amount of income is needed and how her expenses break down? Is the $30k roughly $21k from SS and $9k from employment? When you say grandfather paid her bills, do you mean from his money or just/mostly logistics? If he was using his money for all her needs, do you know how much he spent on her per month? What habits has she had with her own money? What portions are needs/wants? Is she wasteful or just inexperienced?

You don't need to answer for us, but I would also make sure you're thinking about these kinds of aspects and get a good handle on the income goal(s) and how they might change over time before figuring out the amount the inheritance will support and how to operationalize it. Also do you need to do it now or after she quits her job? Will the amount needed be more once she doesn't have the job? Don't want to get her used to SS+job+inheritance income now, when that total will decrease in 3 years, especially if she has habits to spend all her income just because it shows up in her account, which seems like a possibility from here if someone else was covering all her needs her whole life.
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vineviz
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Re: Help my mom- Inheriting $500k+

Post by vineviz »

jt13 wrote: Thu Sep 22, 2022 6:27 am I have already contacted the attorney that did his will, a certified financial planner, and all of the various insurance companies involved. I hit a real roadblock with the CFP when they laid out their fee structure: 1% of all household assets annually for active management or $5k for bi-annual meetings/advice with no management.
I feel compelled to address this part of the question, but I do have a conflict of interest so keep that in mind.

Do NOT engage a financial advisor who charges an AUM fee for your mom. IMHO it would be completely inappropriate.

You probably don't need a financial advisor at all in this case, from what I can tell, but if you feel like you do then seek out one that will work with you on an hourly basis. An experience CPA or tax preparer is probably all you need, along with whatever legal advice you need.
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MattB
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Re: Help my mom- Inheriting $500k+

Post by MattB »

jt13 wrote: Thu Sep 22, 2022 7:59 am
HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Are there any tax considerations or implications with this strategy? Anything more than income taxes on realized gains on the stock sales?
Some funds make surprise capital gains distributions, though not typically index funds, which your mom would need to pay taxes on. You might ask the forum about a particular fund before deciding to invest your mother in it.
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JoeRetire
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Re: Help my mom- Inheriting $500k+

Post by JoeRetire »

jt13 wrote: Thu Sep 22, 2022 7:59 am
HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Are there any tax considerations or implications with this strategy? Anything more than income taxes on realized gains on the stock sales?

She has applied for SS but can only receive either the survivors benefit OR her benefit. Currently the survivor benefit is the higher of the two
At 62, she will not receive the full survivor benefit. She will get only about 80% due to her age.
Consider having her wait until her full retirement age if possible. That way she could get 100% of the survivor benefits.

Check out https://opensocialsecurity.com/
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HomeStretch
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Re: Help my mom- Inheriting $500k+

Post by HomeStretch »

Your mom doesn’t need to make the decision right now whether to buy a SPIA, use a paid advisor or even what to invest in. She can simply have the inherited $ transferred to a brokerage account and use a money market fund or buy T-Bills. She can address how to invest later after she/you determine her expenses and income stream needs.

If your mom wants ongoing help from you with her financial matters, put a durable power-of-attorney in place sooner rather than later. Any paid advisors, CPAs, etc. that you are contacting now on her behalf will be friendly and helpful towards you while in the selling/honeymoon phase. If your mom contracts with them, they will not recognize your attempts to help without a POA.

Edit - before paying off the mortgage on the rental property, be sure to understand the tax impact, if any, on the rental income and SS benefits. Not saying it’s not a good idea, just understand the impact before doing so. Start with last year’s tax return. Also find out if your mom needs to make quarterly estimated tax payments and whether she was handling them or your grandfather was.
Last edited by HomeStretch on Thu Sep 22, 2022 8:43 am, edited 1 time in total.
Nowizard
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Re: Help my mom- Inheriting $500k+

Post by Nowizard »

There are likely to be numerous questions over the next period of time, so keep this thread going. For example, if she has been essentially cared for in regard to finances, spending, etc., then be prepared for her to be bombarded with contacts by mail, telephone, the Internet if she uses it. I would monitor her mail for solicitations as just one, simple suggestion. It sounds like she is active and alert, a good thing, of course. A fund that rebalances regularly is a good start, and one that makes regular payments into an account, as has been suggested.

Tim
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NateH
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Re: Help my mom- Inheriting $500k+

Post by NateH »

Mom is already receiving almost 4k per month plus whatever the rent is on the 2nd house. Is there a need to add much to her income stream? I don't know what her expenses are. Maybe sit down and look at making a budget to understand the gap?

My plan would be:
-pay off mortgage to reduce monthly expenses
-buy a one-fund offering from VG
-setup auto withdrawals to round out her income so she remains financial comfortable. Or just spend the quarterly distributions without reinvestment?
-visit her regularly

watch out for casinos and leaches.
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MattB
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Re: Help my mom- Inheriting $500k+

Post by MattB »

NateH wrote: Thu Sep 22, 2022 8:35 am watch out for casinos and leaches.
Best post of the morning. Thank you for this. Now off to work...
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Re: Help my mom- Inheriting $500k+

Post by HMSVictory »

jt13 wrote: Thu Sep 22, 2022 7:59 am
HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Are there any tax considerations or implications with this strategy? Anything more than income taxes on realized gains on the stock sales?

She has applied for SS but can only receive either the survivors benefit OR her benefit. Currently the survivor benefit is the higher of the two
I'd have her claim the higher survivors benefit. No she will be in a low tax bracket and will have some minor dividend income from the portfolio as well as when she sells to fund the monthly draw there may be some minor capital gains. I would do a dry return for her and see what the tax implications will be - put my gut says pulling $20k off of her portfolio won't create much taxable income. I do this for my mother as well to estimate her taxes - I was off by $46 when her accountant prepared the return.
Stay the course!
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Re: Help my mom- Inheriting $500k+

Post by HMSVictory »

MattB wrote: Thu Sep 22, 2022 7:42 am
HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
Suggest you compare what she would receive from an SPIA, on an annual basis, to what she would be able to pull from her assets as directed above, at 4% per year.

The benefit of an SPIA is that it provides, for all intents and purposes, guaranteed payments for life. That is, your mom wouldn't outlive her money. The detractions, as noted earlier in the thread, include that she would lose access to her reserves (liquidity), and that you won't inherit anything off of an SPIA. Speaking pragmatically, I would be more concerned with my mom outliving her assets, if she were in your mom's shoes, than I would be with inheriting anything.

To your core question: You can certainly set up a single fund at vanguard with an automated transfer to your mom's bank account. The questions, really, are whether your mom might be better served by investing some or most of her assets in an SPIA, and at what age.The answer to those questions might change as she gets older.
She has a quite a bit of guaranteed income - especially when you add in the SS survivors benefit. I prefer to take a little market risk (not much) and have liquidity available to her (oh crap the AC just broke) or she wants to move, or needs assisted living at some point. Life happens.
Stay the course!
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Re: Help my mom- Inheriting $500k+

Post by Cm_hd1 »

HMSVictory wrote: Thu Sep 22, 2022 7:33 am She has applied for SS but can only receive either the survivors benefit OR her benefit. Currently the survivor benefit is the higher of the two
Check with SSA. She may be able to take early retirement on her record and then switch to her husband's record at full retirement age. Rules can be tricky, so best to confirm directly with SSA.
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ruralavalon
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Re: Help my mom- Inheriting $500k+

Post by ruralavalon »

jt13 wrote: Thu Sep 22, 2022 6:27 am All,

My grandfather passed away last week at 87 years old. My mother is the sole beneficiary of his estate. I am trying to get her started on the right path. The estate consists of his home ($200k), a checking account ($300k), and several life insurance annuities ($350k that pay $2200/mo). I have already contacted the attorney that did his will, a certified financial planner, and all of the various insurance companies involved. I hit a real roadblock with the CFP when they laid out their fee structure: 1% of all household assets annually for active management or $5k for bi-annual meetings/advice with no management.

She has ZERO financial knowledge and understanding. My grandfather paid all her bills, bought her house, bought her cars, etc. She has only ever worked part-time at various local supermarkets. As noted below, she still owns the house we grew up in and manages it as a rental property. She currently has health insurance through her job and does some baby sitting on the weekends for extra cash. I would like to get her set up with something automatic where she is getting X amount of money pulled out of investments and deposited into an account for her to use, creating a fixed income type arrangement. She only plans on working until age 65 when she qualifies for Medicare. The below information is her current situation:


Emergency funds: $20k cash

Debt: $80k mortgage on rental property/second home (worth about $200k).

Tax Filing Status: (Single)

Tax Rate: 12% Federal (Income +/- $30k)

State of Residence:PA

Age:62

Investments: $25k in 401k

ADVICE??
To start, I suggest:
1) get her durable power of attorney for property;
2) determine her monthly and annual spending needs and desires, then compare to her current income sources and amounts;
3) tell her to beware of anyone trying to sell any financial services or product. Don't hire a financial planner.
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Re: Help my mom- Inheriting $500k+

Post by JoeRetire »

Cm_hd1 wrote: Thu Sep 22, 2022 9:49 amShe may be able to take early retirement on her record and then switch to her husband's record at full retirement age.
This is correct. She will be able to employ this strategy regarding survivor benefits.
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

NateH wrote: Thu Sep 22, 2022 8:35 am watch out for casinos and leaches.
ruralavalon wrote: Thu Sep 22, 2022 10:22 am To start, I suggest:
3) tell her to beware of anyone trying to sell any financial services or product. Don't hire a financial planner.
Already prepared to fend off the NY Life salesman coming to the house this afternoon to do paperwork for grandpa's stuff...

Im wondering if it'll be in the first 5 minutes before he suggests a whole life policy or if he makes it to the 15 minute mark.

To everyone else:

I will report back as the situation progresses.

After reading some of your suggestions and back of the napkin math on her expenses, I believe that at the current time the $4k a month plus the part-time grocery store job will be sufficient to live comfortably. That will leave the $275k-300k cash to be invested/managed plus the result of the house sale (+/- $200k) that will happen next spring after clean-up/clean-out. I think I like the idea of low-risk index funds/money market as opposed to yet another annuity, but still open to suggestions. I imagine as time goes on, inflation rises, and she retires from the grocery store she will need to take a monthly draw from the cash to continue to live comfortably. Thankfully she's always been frugal, ignorant of her finances, but frugal.
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Re: Help my mom- Inheriting $500k+

Post by protagonist »

There are a few critical pieces of info missing here to make good investment recommendations (unless I overlooked them above):
- mortgage rate
- expected social security payments or other expected income, and when she will start taking it
- level of risk tolerance
- cost of health insurance prior to receiving Medicare
- whether financial help from her children is a serious possibility if needed.
- planned retirement age if known

My first thought would be to either sell the rental property, or if she wants to keep it, she should pay off the mortgage, unless the mortgage rate is extremely low (as has been the case the past few years) in which case she might consider keeping it (especially if she can match it in interest or yield in a safe investment).

Given her age (62, right?):

I would consider putting the majority of the remaining funds in something very safe that would keep up with inflation....I-bonds are great but limited re: how much she can invest, and TIPS yields are very good right now so a TIPS ladder would be a good possibility.

Depending on her risk tolerance (and what she can expect from SS), she might want to put a smaller portion of her money in the stock market, like low cost index funds from Fidelity, Vanguard or some other low cost brokerage. But I would suggest not investing any more than she can afford to lose and is willing to lose. If stock losses would cause her considerable anxiety she should limit her stock market investing. In retirement, anxiety is the enemy of joy. And she has enough to cope with now with the death of her parent.

CAVEAT: Just saw you wrote she has zero financial understanding or interest. So all the above is predicated on somebody essentially doing it for her. That somebody could be you, since the investments I suggested would involve very little monitoring (like what to do when TIPS mature). Either way it would be useful to try to get her to understand the logic behind what she is doing. Maybe now that she has more money, she will be more motivated, especially if it is laid out in simple terms.
Last edited by protagonist on Thu Sep 22, 2022 11:10 am, edited 2 times in total.
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Re: Help my mom- Inheriting $500k+

Post by ruralavalon »

jt13 wrote: Thu Sep 22, 2022 10:39 am
NateH wrote: Thu Sep 22, 2022 8:35 am watch out for casinos and leaches.
ruralavalon wrote: Thu Sep 22, 2022 10:22 am To start, I suggest:
3) tell her to beware of anyone trying to sell any financial services or product. Don't hire a financial planner.
Already prepared to fend off the NY Life salesman coming to the house this afternoon to do paperwork for grandpa's stuff...

Im wondering if it'll be in the first 5 minutes before he suggests a whole life policy or if he makes it to the 15 minute mark.

To everyone else:

I will report back as the situation progresses.

After reading some of your suggestions and back of the napkin math on her expenses, I believe that at the current time the $4k a month plus the part-time grocery store job will be sufficient to live comfortably. That will leave the $275k-300k cash to be invested/managed plus the result of the house sale (+/- $200k) that will happen next spring after clean-up/clean-out. I think I like the idea of low-risk index funds/money market as opposed to yet another annuity, but still open to suggestions. I imagine as time goes on, inflation rises, and she retires from the grocery store she will need to take a monthly draw from the cash to continue to live comfortably. Thankfully she's always been frugal, ignorant of her finances, but frugal.
Being frugal is a great plus for her situation.

Some of the "the $275k-300k cash to be invested/managed" might be used for living expenses to enable her to contribute the annual employee maximum ($27k since over age 50) to her 401k unless the plan is complete garbage or no longer with that employer, or to contribute the annual maximum to an IRA ($7k since over age 50) at a low cost provider like Vanguard or Fidelity.
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Re: Help my mom- Inheriting $500k+

Post by David Jay »

JoeRetire wrote: Thu Sep 22, 2022 10:35 am
Cm_hd1 wrote: Thu Sep 22, 2022 9:49 amShe may be able to take early retirement on her record and then switch to her husband's record at full retirement age.
This is correct. She will be able to employ this strategy regarding survivor benefits.
There is no better income than Social Security benefits because of the inflation protection. I would aggressively pursue this.

If she can suspend her survivor benefits (Need to check with SS) until age 66 years 10(?) months (widow benefit FRA is less than personal benefit) then her SS benefit will be significantly larger. She can replace the $1729 a month from the “windfall”.
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

David Jay wrote: Thu Sep 22, 2022 11:30 am
JoeRetire wrote: Thu Sep 22, 2022 10:35 am
Cm_hd1 wrote: Thu Sep 22, 2022 9:49 amShe may be able to take early retirement on her record and then switch to her husband's record at full retirement age.
This is correct. She will be able to employ this strategy regarding survivor benefits.
There is no better income than Social Security benefits because of the inflation protection. I would aggressively pursue this.

If she can suspend her survivor benefits (Need to check with SS) until age 66 years 10(?) months (widow benefit FRA is less than personal benefit) then her SS benefit will be significantly larger. She can replace the $1729 a month from the “windfall”.
How do I help her achieve/do this? Something done online or will she need to go to an office? Any resources available to help?
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Re: Help my mom- Inheriting $500k+

Post by Stinky »

I haven't seen much discussion of the existing annuities upthread. (Sorry if I missed something that was posted.)

You mention that she has some annuities worth $350k that are paying $2,200 per month (that's $26,400 per year). You also mention a "NY Life salesman coming to the house this afternoon to do paperwork for grandpa's stuff". Finally, you imply that there were several insurance companies that issued the annuities, and mention that the annuities pass via beneficiary designation.

Concerning the annuities -
---- Were they qualified (that is, IRA) annuities, from which grandpa was taking required minimum distributions (RMDs)? Or were they non-qualified (that is, taxable) annuities from which grandpa was taking regular distributions to supplement his income?
---- Were they annuities that were "accumulation" annuities - that is, they had not yet been "annuitized"? (I assume that they were still in the accumulation phase, since there wouldn't be a dollar value for the annuities (you mention $350k) if they had already been annuitized).
---- Were they fixed annuities or variable annuities? (If they were from NY Life, there's a good chance that they're fixed annuities.)
---- If they were fixed annuities, do you know what type of annuities they were, and what rate of interest they were paying?
---- Do you have specific plans for the current annuities going forward? Do you plan to keep them with the current companies in their current form, or roll them to some other investment product?
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Re: Help my mom- Inheriting $500k+

Post by David Jay »

jt13 wrote: Fri Sep 23, 2022 2:43 am
David Jay wrote: Thu Sep 22, 2022 11:30 am
JoeRetire wrote: Thu Sep 22, 2022 10:35 am
Cm_hd1 wrote: Thu Sep 22, 2022 9:49 amShe may be able to take early retirement on her record and then switch to her husband's record at full retirement age.
This is correct. She will be able to employ this strategy regarding survivor benefits.
There is no better income than Social Security benefits because of the inflation protection. I would aggressively pursue this.

If she can suspend her survivor benefits (Need to check with SS) until age 66 years 10(?) months (widow benefit FRA is less than personal benefit) then her SS benefit will be significantly larger. She can replace the $1729 a month from the “windfall”.
Last I checked, one can make a phone appointment and just ask the question. I don’t know the answer, but it seems to be something important to pursue.
How do I help her achieve/do this? Something done online or will she need to go to an office? Any resources available to help?
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

Stinky wrote: Fri Sep 23, 2022 3:57 am
Concerning the annuities -
---- Were they qualified (that is, IRA) annuities, from which grandpa was taking required minimum distributions (RMDs)? Or were they non-qualified (that is, taxable) annuities from which grandpa was taking regular distributions to supplement his income?

One qualified, one non-qualified. Worth $160k each

---- Were they annuities that were "accumulation" annuities - that is, they had not yet been "annuitized"? (I assume that they were still in the accumulation phase, since there wouldn't be a dollar value for the annuities (you mention $350k) if they had already been annuitized).

He was receiving payments from both of them, $1600 from the qualified and $600 from the non-qualified. Not sure if that answers your questions


---- Were they fixed annuities or variable annuities? (If they were from NY Life, there's a good chance that they're fixed annuities.)

Fixed

---- If they were fixed annuities, do you know what type of annuities they were, and what rate of interest they were paying?

The qualified states it's a New York Life Guaranteed Lifetime Income Annuity with Single Life Annuity With Installment Refund

The non-qualified says New York Life Guaranteed Lifetime Income Annuity with Joint Life Annuity With Cash Refund

No idea on the rate


---- Do you have specific plans for the current annuities going forward? Do you plan to keep them with the current companies in their current form, or roll them to some other investment product?

The qualified money will probably stay a NY Life IRA and sit until she stops working completely or needs it. The non-qualified, I have no idea what we do with that. To be honest I am pretty uneducated about what the function of a non-qualified Annuity is.

A new development is NY life salesman wants us to put the $300k cash into municipal bonds. Told mom to hold off until we get a second/third opinion. Also found 700 shares of a gas company stock we didnt know he had worth a little more that $50k
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Re: Help my mom- Inheriting $500k+

Post by like2read »

Sounds like the cash needs beyond what she already has are not that great. Perhaps consider something like Vanguard Wellesley Income fund for the proceeds from the inheritance, and direct the dividends and capital gains to a cash account.
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Re: Help my mom- Inheriting $500k+

Post by Stinky »

jt13 wrote: Fri Sep 23, 2022 2:30 pm
Stinky wrote: Fri Sep 23, 2022 3:57 am
Concerning the annuities -
---- Were they qualified (that is, IRA) annuities, from which grandpa was taking required minimum distributions (RMDs)? Or were they non-qualified (that is, taxable) annuities from which grandpa was taking regular distributions to supplement his income?

One qualified, one non-qualified. Worth $160k each

---- Were they annuities that were "accumulation" annuities - that is, they had not yet been "annuitized"? (I assume that they were still in the accumulation phase, since there wouldn't be a dollar value for the annuities (you mention $350k) if they had already been annuitized).

He was receiving payments from both of them, $1600 from the qualified and $600 from the non-qualified. Not sure if that answers your questions


---- Were they fixed annuities or variable annuities? (If they were from NY Life, there's a good chance that they're fixed annuities.)

Fixed

---- If they were fixed annuities, do you know what type of annuities they were, and what rate of interest they were paying?

The qualified states it's a New York Life Guaranteed Lifetime Income Annuity with Single Life Annuity With Installment Refund

The non-qualified says New York Life Guaranteed Lifetime Income Annuity with Joint Life Annuity With Cash Refund

No idea on the rate


---- Do you have specific plans for the current annuities going forward? Do you plan to keep them with the current companies in their current form, or roll them to some other investment product?

The qualified money will probably stay a NY Life IRA and sit until she stops working completely or needs it. The non-qualified, I have no idea what we do with that. To be honest I am pretty uneducated about what the function of a non-qualified Annuity is.

A new development is NY life salesman wants us to put the $300k cash into municipal bonds. Told mom to hold off until we get a second/third opinion. Also found 700 shares of a gas company stock we didnt know he had worth a little more that $50k
I’m a little bit confused about the annuities. Based on what you’ve posted, I’m concerned that the monthly benefits on the annuities might stop well before your mother passes away.

You say that they’re both NYL Guaranteed Lifetime Income Annuities. I googled that term, and came up with the following link: https://www.newyorklife.com/products/an ... me-amounts

If that link accurately describes the annuities, then they’re both regular single premium immediate annuities (SPIAs). And, if grandpa was receiving monthly income from a SPIA, that meant it’s in the “payout” stage. In other words, the benefits on a SPIA would be monthly annuity payments - there is no cash surrender value.

Now, here are some more questions and comments:
—— Where did the value of $160k for each annuity come from? Is that a “value” shown on a current document from NYL, or is that the original single premium that was paid for the SPIAs?
—— You say that the qualified annuity is “single life, with installment refund”. What that typically means is that the monthly annuity benefits are paid while your grandpa was alive, and continue after his death until the cumulative annuity benefits equal the original premium paid. (If the cumulative annuity benefits paid during his life were greater than his original premium, then no additional benefits would be paid after his death.). If I’ve got the policy described correctly, then someone needs to figure out if mom will get any additional monthly income, and if so, how long it will continue to be paid.
—- You say that the non qualified annuity is “joint life, with cash refund”. Who was the “joint” annuitant - was it your mom, or was it your grandma (who I presume has passed away)? If the joint annuitant is mom, then annuity benefits will continue for the rest of her life. However, if the joint annuitant was someone who is now deceased, there would be a lump sum benefit equal to the excess of the original premium paid over the cumulative benefits paid. If the cumulative benefits exceed the premium paid, then there are no more benefits under the annuity.

I expect that the NYL team (either the agent or the home office) could tell you exactly what the benefits under the annuities are. I encourage you to reach out to NYL if you have any questions.

Post with with any questions you have for me.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

Stinky wrote: Fri Sep 23, 2022 5:33 pm
jt13 wrote: Fri Sep 23, 2022 2:30 pm
Stinky wrote: Fri Sep 23, 2022 3:57 am
I’m a little bit confused about the annuities. Based on what you’ve posted, I’m concerned that the monthly benefits on the annuities might stop well before your mother passes away.

You say that they’re both NYL Guaranteed Lifetime Income Annuities. I googled that term, and came up with the following link: https://www.newyorklife.com/products/an ... me-amounts

If that link accurately describes the annuities, then they’re both regular single premium immediate annuities (SPIAs). And, if grandpa was receiving monthly income from a SPIA, that meant it’s in the “payout” stage. In other words, the benefits on a SPIA would be monthly annuity payments - there is no cash surrender value.

Now, here are some more questions and comments:
—— Where did the value of $160k for each annuity come from? Is that a “value” shown on a current document from NYL, or is that the original single premium that was paid for the SPIAs?

It's shown on my grandfathers online NY Life account. Shows and account balance and a total value.


—— You say that the qualified annuity is “single life, with installment refund”. What that typically means is that the monthly annuity benefits are paid while your grandpa was alive, and continue after his death until the cumulative annuity benefits equal the original premium paid. (If the cumulative annuity benefits paid during his life were greater than his original premium, then no additional benefits would be paid after his death.). If I’ve got the policy described correctly, then someone needs to figure out if mom will get any additional monthly income, and if so, how long it will continue to be paid.

Need to look into this one

—- You say that the non qualified annuity is “joint life, with cash refund”. Who was the “joint” annuitant - was it your mom, or was it your grandma (who I presume has passed away)? If the joint annuitant is mom, then annuity benefits will continue for the rest of her life. However, if the joint annuitant was someone who is now deceased, there would be a lump sum benefit equal to the excess of the original premium paid over the cumulative benefits paid. If the cumulative benefits exceed the premium paid, then there are no more benefits under the annuity.

On the "single life" my grandfather is the owner and my mother is the beneficiary.

On the "joint", my mother and grandfather are joint owners and me and my siblings are beneficiaries.

I expect that the NYL team (either the agent or the home office) could tell you exactly what the benefits under the annuities are. I encourage you to reach out to NYL if you have any questions.

Post with with any questions you have for me.

What are the tax implications/obligations on inheriting a non-qualified annuity? Does she have to keep the money from this account in an annuity or face tax consequences? (NY Life agent stated it had to be 1035'd into a similar product or "take on the tax burden of all but a $36,000 cost basis"

Does that sound right?
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Re: Help my mom- Inheriting $500k+

Post by Stinky »

Well, I stand corrected. If your grandfathers online account shows a $160k value, then these are “accumulation” annuities, rather than SPIAs. The NYL website that I referenced must be referring to a different product than what grandpa had.

Presuming that these are both “accumulation” annuities -

—— The qualified single life annuity, on which mom is beneficiary, should be treated like any other inherited IRA. Per this recent article from Fidelity, your mom will need to start taking required minimum distributions (RMDs), and fully draw down the inherited IRA within 10 years. https://www.fidelity.com/learning-cente ... spouse-IRA

All payments from an inherited IRA are taxable income. She could choose to roll the NYL annuity into another inherited IRA, like a mutual fund, if she chose to do so.

—— The non-qualified joint life annuity will continue on with mom as sole surviving owner/annuitant. She is not required to make withdrawals. Any withdrawals from the annuity are treated as taxable income first, then return of basis. She could stay with the NYL annuity, or do a 1035 exchange to an annuity from another company, to maintain the tax deferral of the earnings. If she were to just surrender the annuity now, it sounds like she would have taxable income of $124k ($160k current value minus $36k basis).

Sorry for my confusion. This is a confusing situation to me because the product name makes the annuities sound like SPIAs, while the fact that there is an “account value” and that the agent is talking about a 1035 exchange makes the policies sound like accumulation annuities.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

Stinky wrote: Fri Sep 23, 2022 9:57 pm
—— The qualified single life annuity, on which mom is beneficiary, should be treated like any other inherited IRA. Per this recent article from Fidelity, your mom will need to start taking required minimum distributions (RMDs), and fully draw down the inherited IRA within 10 years. https://www.fidelity.com/learning-cente ... spouse-IRA
This is the first I'm hearing this, and it changes things.

Thank you
Last edited by jt13 on Sat Sep 24, 2022 3:03 am, edited 1 time in total.
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Re: Help my mom- Inheriting $500k+

Post by Grt2bOutdoors »

HMSVictory wrote: Thu Sep 22, 2022 7:33 am Here is a KISS plan for your mom. Good on you for stepping up to help her - I am going to assume she wants the help?

Pay off the mortgage of $80k, once she has an emergency fund setup I would invest the rest of the proceeds into Vanguard Balanced Fund where you can setup an auto draft of X dollars per month for her draw. I would feel very comfortable drawing 4% of the money at her age no problem. Keep an eye on the account for her and if it starts getting beat up then taper it back a bit but nothing dramatic.

Sounds like she has $4k plus a month coming in from survivors benefit plus the inherited annuity. Has she applied for SS?
A person with no financial understanding who follows the above, takes $500,000 and withdraws 0.33 per month or 4% annually- portfoliovisualizer says the account is down 16.8% year to date and is now valued at $415,681. Given the OPs mother has zero capacity for loss and likely zero or low behavioral ability to understand markets I would advise no rush into any funds or investments or advisers until several thorough discussions are had with the OPs mother on clear examples of what could and has happened in the past and currently. For now, the OP could buy super safe Treasury bills and notes earning close to or exceeding 4% while they figure out next moves.

Given the OPs mother is so close to retirement, I’d burn that mortgage by paying it off. If the fathers home is to be sold, I’d look at the feasibility of that with current housing market.
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Re: Help my mom- Inheriting $500k+

Post by jt13 »

Thanks to you all I feel like I am making some progress in both my understanding on what to do and what direction to push her in.

-According to the information provided by Stinky, new IRS rules require inherited non-spouse IRA's that RMD's be taken immediately and the whole account needs to be used/withdrawn within 10 years. Ballpark numbers are $160k for 10 years is around $1350/mo with the account running dry in 2034.

-The non qualified money can be 1035'd into another annuity with fixed growth for 10 years until the qualified money is gone then we can either go with a scheduled withdrawal program or annuitize for guaranteed lifetime monthly payments.

-The trick will be figuring out what best to do with $300k cash from the checking account and the cash from the sale of the house (another $200k) to best benefit her and our family down the road. Between her part-time job, $1700/mo from social security, and a lifetime of annuity payments should be enough for her to live happily. Even if we supplemented the non-qualified annuity with another $250k to beef up the payments that will still leave $250k cash to park somewhere for the long term. As pointed out above, she has little tolerance for risk but it would be a darned shame to not handle that money appropriately. If my grandfather had a half-decent financial advisor instead of falling prey to an insurance salesman we'd be looking at millions instead of thousands....
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Re: Help my mom- Inheriting $500k+

Post by Stinky »

jt13 wrote: Sat Sep 24, 2022 9:02 am
Even if we supplemented the non-qualified annuity with another $250k to beef up the payments that will still leave $250k cash to park somewhere for the long term. As pointed out above, she has little tolerance for risk but it would be a darned shame to not handle that money appropriately. If my grandfather had a half-decent financial advisor instead of falling prey to an insurance salesman we'd be looking at millions instead of thousands….
It sounds like you’re making progress in thinking this through.

I’m sure you’re aware - it really doesn’t do any good to dwell on the past actions of grandpa. There’s nothing you can do about them, and just thinking about it can make you miserable. Please focus on what you can do moving forward.

To the problem at hand - it sounds like you’ve got a decent pile of cash that won’t be touched at least for a decade. Such a long time horizon argues for at least some exposure to equities, if you want to see growth. Maybe you could tiptoe in with a modest allocation to a broad market index fund like Total Stock Market, maybe for 30-50% of her investible funds.

Mom would probably want to hold back some cash, which might end up being used for long term care out some point. That cash could be invested in Treasuries, for example, many of which are currently paying 4+%.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
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