taking over HNW father's portfolio

[kermit88]

My 78 yo father had a longtime advisor at MS who recently retired. He has asked me to manage his 3.4M portfolio.

I manage my own 3M+ portfolio at Vanguard using a Boglehead 4-fund approach. Am also the only child.

His portfolio is evenly split in 1.7M taxable/1.7M SEP IRA. It's a mishmash of high fee funds and individual stocks, as well as 300k in a variable annuity (non-qualified). His current asset allocation is about 90% stocks/10% bonds (yes really). He gets about 27k in SS, and has 500k in home equity (200k remaining on his mortgage). His expenses after SS are about 50k a year.

My plan is thus:

Transfer his accounts to Vanguard (I am familiar with their interface and haven't had any customer service issues). Transition as much as possible to a 4-fund portfolio (hanging on to securities in taxable with large LTCGs). Should be able to fund his ongoing expenses primarily through RMDs.

Questions:

1. Is a 1035 exchange of the variable annuity to Fidelity's low cost variable annuity the best option? I would rather not surrender it and create a taxable event. Again the fees of his current variable annuity are quite high, about 2.5% AUM in total.

2. Am looking for stock/bond asset allocation feedback for him. Am thinking that given his relatively low expenses vs value of his portfolio, he can take a bit more risk. Not 90/10 like he is currently, but in the 60-75% equities range.

Thanks in advance for your thoughts!

[carminered2019]

Put 20X in fixed income, the rest in a 75/25(US/int) stock portfolio and pay off the mortgage.

[RetiredAL]

My 78 yo father had a longtime advisor at MS who recently retired. He has asked me to manage his 3.4M portfolio.

My plan is thus:

Transfer his accounts to Vanguard (I am familiar with their interface and haven't had any customer service issues). Transition as much as possible to a 4-fund portfolio (hanging on to securities in taxable with large LTCGs). Should be able to fund his ongoing expenses primarily through RMDs.

Questions:


2. Am looking for stock/bond asset allocation feedback for him. Am thinking that given his relatively low expenses vs value of his portfolio, he can take a bit more risk. Not 90/10 like he is currently, but in the 60-75% equities range.

Thanks in advance for your thoughts!

Q2: You need to decide if you will be investing to cover his potential later in life expenses, or investing for the heir's. For my Dad, it was investing for the heir's, but he was already 90.

Hanging on to LTCG: My Dad had 2 large positions in a self directed account, a Janus Fund and Schwab' 1000 Fund, both dating to the mid 90's. I let those ride knowing they would get a step-up valuation. Other Funds/Stock with much less LTCG got sold to simplify.

My Dad also had a managed taxable and 2 managed IRA's, with the typical complexity seen in managed accounts. After taking them to self directed, I quickly switched the IRA's to simple holdings, and during a market dip, the taxable account. The taxable account had so much churn it did not have a lot of embedded LTCG.

Do get him to concur on the changes, so if the market goes south soon, he will be less likely to blame you.

I think your overall plan is decent.

edit to add: I found Schwab to be very accepting of me being Dad's POA.

[cas]

Do get him to concur on the changes, so that [when fill-in-the-blank happens] he will be less likely to blame you.

Along these lines, be forewarned that you may be in the doghouse if he gets his annual SS benefits letter, and it suddenly shows an IRMAA deduction (because you had been fiddling with his portfolio and generating MAGI) that has never been there before and that he didn't agree to in advance. That first IRMAA threshold is pretty low for a person who is filing Single.

My elderly relatives notice and get upset about things like that perhaps out of proportion, but ... still ... it is their portfolio and their lives and their finances and the IRMAA line is kind of an obvious big number for their eyes to alight upon. And it is also true that adult children quite often have a large learning curve when it comes to how the taxes of their post-SS, post-Medicare, post-RMD parents actually work.

[milktoast]

68x after social security expenses. 90/10 is reasonable. In SP500 the current dividend yield covers 75% of his annual expenses. And SP500 is not a dividend portfolio.

It's fine if you and he decide to be more conservative. But it probably isn't necessary. 15% in bonds would cover 10yrs of expenses.

What is mortgage interest rate?

[mhadden1]

His portfolio is evenly split in 1.7M taxable/1.7M SEP IRA.

I would plan to use IRA funds/RMDs for any expensive future care, which would likely be tax deductible. After establishing a comfort level there, I see no problem managing for legacy. I think Dad has won the game and can take as much or as little risk as desired.

[kermit88]

Thanks for the responses.

His mortgage is 2.85% 30 yr fixed so will not be paying it off for now.

Great point about the IRMAA. He is already in the doghouse with the churn from his MS account (30-45k in cap gains per year). I complained to his advisor about this with no effect. I am hoping to significantly improve this with an index fund approach (and not do any moves that will trigger major LTCGs).

[HomeStretch]

Consider using Fidelity (or Schwab) as they are POA friendly. I use and like Vanguard. But I had to move my parents’ long time POA accounts from Vanguard in 2022 due to issues. Search the forum for LadyGeek’s thread about a transfer for similar reasons which I commented in.

[RetiredAL]

Thanks for the responses.

His mortgage is 2.85% 30 yr fixed so will not be paying it off for now.

Great point about the IRMAA. He is already in the doghouse with the churn from his MS account (30-45k in cap gains per year). I complained to his advisor about this with no effect. I am hoping to significantly improve this with an index fund approach.

That CapGain churn for my Dad (his was high 20k's) was his deciding moment for changes. With Dad's Fed and CA Tax, he was paying 40%. And it threw him into the IRMAA step-3 by a few K's.

[doobiedoo]

My 78 yo father had a longtime advisor at MS who recently retired. He has asked me to manage his 3.4M portfolio.
.. Am also the only child.

His portfolio is evenly split in 1.7M taxable/1.7M SEP IRA. It's a mishmash of high fee funds and individual stocks, as well as 300k in a variable annuity (non-qualified). His current asset allocation is about 90% stocks/10% bonds (yes really). He gets about 27k in SS, and has 500k in home equity (200k remaining on his mortgage). His expenses after SS are about 50k a year.

My plan is thus:
Transfer his accounts to Vanguard (I am familiar with their interface and haven't had any customer service issues). Transition as much as possible to a 4-fund portfolio (hanging on to securities in taxable with large LTCGs). Should be able to fund his ongoing expenses primarily through RMDs.
..

FWIW, when my parents asked for financial help [20 years ago], I did not make big changes to their portfolio.
I opted to make minimal changes in their financial life [and also in their personal life].

Was that the "right decision"? Who knows. But it was the most comfortable decision for my parents.

[My parents did not have a mortgage or high fee investments. They did have a lot of individual stocks with the stock certificates sitting in their safe deposit box! Yes, they did not trust brokerages! After they both died, it was a big PITA to transfer those certificates from six different transfer agents, each of whom had their own forms and requirements. I was not the sole heir.]

[J295]

I took over for my parents in their mid 80s, when my father was disabled, and my mother was not interested.

Why is your father having you take over management, and will he want to be consulted on the decisions you make? Does he want to remain equity aggressive, and what are his objectives?

I ask because his motivations may impact what I suggest you consider going forward.

[Stinky]

1. Is a 1035 exchange of the variable annuity to Fidelity's low cost variable annuity the best option? I would rather not surrender it and create a taxable event. Again the fees of his current variable annuity are quite high, about 2.5% AUM in total.

I agree that 2.5% fees are a real drag, and dad is likely well served to be out of the high cost VA.

Before he does that, just check out the policy to see if he has any riders that are well “in the money” -

—- For example, his policy might have a guaranteed withdrawal or income benefits. That might be a valuable rider to him if both of these conditions are satisfied - (a) he wants to use the money in the VA to provide a monthly income, and (b) the income available from the rider benefit is higher than he could get by surrendering the VA and using the proceeds to buy a SPIA.

—- Another example is if his policy has a current death benefit well higher than his account value.

Presuming that he does not have a VA with riders that are in the money, then a 1035 exchange to another annuity makes sense.

If he continues to want to invest the money currently in the VA in equities, then the Fidelity product is a great choice. However, please make sure he realizes that all income on an annuity, even from equity funds, is taxed as ordinary income. Also make sure he realizes that annuities do not receive a basis step up at death, so if dad doesn’t pay the taxes, his heirs will.

Given the tax situation on annuities, dad might want to 1035 exchange into an annuity invested in fixed income - either a variable annuity like the fidelity VA with a good bond fund, or a low cost fixed annuity like a multi year guaranteed annuity (MYGA).

Lots of details here! Post back with questions.

[kermit88]

Due to health issues, I currently manage all of his finances except investments. However he can still make decisions and I gave him the option of hiring another advisor if that was his preference. I was pleasantly surprised that he chose the index fund route, but it came down to that he could trust me more than any advisor, and I will be doing with his investments exactly what I do with mine.

His objectives are basically to make sure his ongoing expenses are covered as well as leave a legacy. As far as I can tell he isn't bothered by his current 90/10 allocation and he has weathered severe downturns in his portfolio in the past (2000, 2008 etc).

My approach is to agree on a stock/bond allocation and make sure he is comfortable with what the worst year could be as well as the average return. As an aside (and not surprising) his MS portfolio has been significantly underperforming given the risk level.

I took over for my parents in their mid 80s, when my father was disabled, and my mother was not interested.

Why is your father having you take over management, and will he want to be consulted on the decisions you make? Does he want to remain equity aggressive, and what are his objectives?

I ask because his motivations may impact what I suggest you consider going forward.

[Outer Marker]

I would significantly up his fixed income to ensure all needs are covered in his lifetime. 60/40 is about as agressive as I'd go. I'm not sure what you mean by "4 funds". "3 funds" is the default boglehead option, and general concensus around here is that Vanguard places too much weight on international (and that international bonds are unnecessary). I would use high quality fixed income - i.e., short term treasury index and CD's as opposed to Total Bond. or, in the alternative, a 10 year TIPS ladder to fund all essential spending.

[kermit88]

Thanks for this reply. To be honest I have very limited knowledge of variable annuities (other than that they are typically poor investments due to high fees).

He does not want to use the VA for monthly income. Frankly at this point he is scarcely aware of its existence. Also his life expectancy is significantly lowered by his health condition, so I don't think annuitization would mathematically make sense (correct me if I am wrong).

It does have a guaranteed withdrawal benefit rider. Do you have a recommended way to have an unbiased professional analyze the policy? I would definitely not trust what MS has to say about it.

1. Is a 1035 exchange of the variable annuity to Fidelity's low cost variable annuity the best option? I would rather not surrender it and create a taxable event. Again the fees of his current variable annuity are quite high, about 2.5% AUM in total.

I agree that 2.5% fees are a real drag, and dad is likely well served to be out of the high cost VA.

Before he does that, just check out the policy to see if he has any riders that are well “in the money” -

—- For example, his policy might have a guaranteed withdrawal or income benefits. That might be a valuable rider to him if both of these conditions are satisfied - (a) he wants to use the money in the VA to provide a monthly income, and (b) the income available from the rider benefit is higher than he could get by surrendering the VA and using the proceeds to buy a SPIA.

—- Another example is if his policy has a current death benefit well higher than his account value.

Presuming that he does not have a VA with riders that are in the money, then a 1035 exchange to another annuity makes sense.

If he continues to want to invest the money currently in the VA in equities, then the Fidelity product is a great choice. However, please make sure he realizes that all income on an annuity, even from equity funds, is taxed as ordinary income. Also make sure he realizes that annuities do not receive a basis step up at death, so if dad doesn’t pay the taxes, his heirs will.

Given the tax situation on annuities, dad might want to 1035 exchange into an annuity invested in fixed income - either a variable annuity like the fidelity VA with a good bond fund, or a low cost fixed annuity like a multi year guaranteed annuity (MYGA).

Lots of details here! Post back with questions.

[mikeyzito22]

I would significantly up his fixed income to ensure all needs are covered in his lifetime. 60/40 is about as agressive as I'd go. I'm not sure what you mean by "4 funds". "3 funds" is the default boglehead option, and general concensus around here is that Vanguard places too much weight on international (and that international bonds are unnecessary). I would use high quality fixed income - i.e., short term treasury index and CD's as opposed to Total Bond. or, in the alternative, a 10 year TIPS ladder to fund all essential spending.

Can you clarify? He's 78 and has over 3 million. Also, "his life life expectancy" is decreased. Why do think he wouldn't be able to cover expenses for the rest of his life with a 100% stock allocation? I'm not suggesting that, but theres a very real chance of this being totally fine. "General consensus around here" really doesn't matter. Even a 50% haircut followed by a rebound may be enough, with social security and not doing the things that 80 year olds do like skydiving and going on expensive vacations and such.

[Stinky]

Thanks for this reply. To be honest I have very limited knowledge of variable annuities (other than that they are typically poor investments due to high fees).

He does not want to use the VA for monthly income. Frankly at this point he is scarcely aware of its existence. Also his life expectancy is significantly lowered by his health condition, so I don't think annuitization would mathematically make sense (correct me if I am wrong).

It does have a guaranteed withdrawal benefit rider. Do you have a recommended way to have an unbiased professional analyze the policy? I would definitely not trust what MS has to say about it.

If dad has a reduced life expectancy, and he doesn’t want to draw monthly income from the annuity, then there’s no reason to even do the analysis on the withdrawal rider. In his case, it’s worse than worthless, because it’s costing him rider fees for no benefit.

You didn’t mention whether the death benefit is higher than the account value. You should be able to tell this from his most recent annual statement, or maybe from the insurance company online portal. That’s the last thing to look at.

If the DB equals the AV, I’d suggest you execute the 1035 exchange, being aware of the gotchas I mentioned in my first response.

If the fees are “just” 2.5%, then his $300k annuity is costing him over $600 per month in fees. Time to move on!

Post back with questions.

[Outer Marker]

I would significantly up his fixed income to ensure all needs are covered in his lifetime. 60/40 is about as agressive as I'd go. I'm not sure what you mean by "4 funds". "3 funds" is the default boglehead option, and general concensus around here is that Vanguard places too much weight on international (and that international bonds are unnecessary). I would use high quality fixed income - i.e., short term treasury index and CD's as opposed to Total Bond. or, in the alternative, a 10 year TIPS ladder to fund all essential spending.

Can you clarify? He's 78 and has over 3 million. Also, "his life life expectancy" is decreased. Why do think he wouldn't be able to cover expenses for the rest of his life with a 100% stock allocation? I'm not suggesting that, but theres a very real chance of this being totally fine. "General consensus around here" really doesn't matter. Even a 50% haircut followed by a rebound may be enough, with social security and not doing the things that 80 year olds do like skydiving and going on expensive vacations and such.

First off, $3M is not "HNW." It's just average wealthy. The HNW club starts at $10M which, if he had, a 90/10 AA would be fine. If I were your dad, I'd want a minimum of $1M in safe assets to cover LTC, medical treatments, etc. not all of which may qualify for medicare/insurance. I did not expect my mom, who had a heart attack at 60, to live into her 90's -- but she did, and late in life expenses were substantial. Going to a more conservative AA for the duration of your dad's life is prudent. 60/40 is not hiding in a bunker. If things work out well, you can increase when he passes. You haven't missed out on much. But if you need to spend down, in a down market, at a very high AA, it will be painful. There's an old saying in aviation: "It is better to be on the ground wishing you were in the air - than in the air wishing you were on the ground."

* corrected

[J295]

Thanks for giving me a little of your historical perspective. So you can filter my response, my parents and my spouse and I have always been self managed for investments, and both my dad and I were comfortable with heavy stock allocations (me 100% until early retirement, and my dad nearly 100% plus commercial and ag real estate until he passed away in his 80s). I began managing for he and mom when he became disabled, and continue now for my mom who is 90 and doing well.

Here are random thoughts in no order

I keep $2M for mom in treasuries. Rest in index funds with material LTCG (despite the step up when dad passed). I think I would be labeled on the conservative side, if one had to give a label to what I do. You could go lower than this for your dad, I just don’t have the appetite for it. Very personal — I really think it’s whatever you and your dad are comfortable with.

As a family unit (Mom, myself, and siblings) all have “enough” so not concerned about this “safe money” not having as much potential for increases through equity exposure.

Her expenses in independent living are modest now, but that can change drastically if assisted care, memory, care, etc. becomes necessary. With the strong safe allocation, we won’t blink to pay for whatever is necessary, including additional care in an assisted unit unit if needed (we did that for both my mother-in-law and for my dad at various times). Or if we needed to get care for mom or move her in with one of us there wouldn’t be a financial concern. My point is we just don’t know what the future holds for your dad and my mom and there’s at least a possibility of some material expenses.

As I age, now 65, with a mom who is 90, your dad’s age of 78 doesn’t seem very old. Tough to know how many years to project when planning.

If you haven’t already done, so, I’d work with your dad to get a basic estate plan in place. General durable power of attorney, power of attorney for healthcare, will or revocable trust, updated beneficiary, designations, DNR decision, etc..

You may wish to give your dad periodic reports. I do it for my mom and siblings. They don’t really need it or want it, but I think it makes them feel secure, knowing my hand is on the rudder. I also have a checklist on there for insurance, quarterly, estimates, etc. so that helps too.

One thing that may be a little unique that I did with my dad was I asked him this question. Dad, if you get some level of dementia later on and I’m taking over your finances, and you ask me to do something that I know is out of character, Such as a crazy investment or gift, do you want me to tell you yes I will do that and then just ignore you and do what I think you would otherwise want me to do? He said yes, and this gave me the license to always know I could do what was best for my mom and dad if he or she got dementia without violating my natural inclination to respect their autonomy and follow their wishes.

Good luck to you and your dad. I’m sure you make an awesome team.

[corn18]

A word of caution: My MIL has a $3M portfolio that is managed by a Wells Fargo advisor she and her husband have used for decades. Her husband passed 9 years ago and she stayed with that advisor. She is 82. I have full access to all of her investments and talk to her advisor once or twice a year. She pays about $30k / year in fees and expenses. I would love to take it over and simplify her portfolio to zero expenses but I won't. I do not want to be the bad guy when the market drops and she loses money through no fault of her or her advisor's own. I know she would because she mentions every time she gets her monthly statement and she has lost money. Never says boo if it goes up and it has gone up a lot. So I choose to stay out of it.

[mikeyzito22]

I would significantly up his fixed income to ensure all needs are covered in his lifetime. 60/40 is about as agressive as I'd go. I'm not sure what you mean by "4 funds". "3 funds" is the default boglehead option, and general concensus around here is that Vanguard places too much weight on international (and that international bonds are unnecessary). I would use high quality fixed income - i.e., short term treasury index and CD's as opposed to Total Bond. or, in the alternative, a 10 year TIPS ladder to fund all essential spending.

Can you clarify? He's 78 and has over 3 million. Also, "his life life expectancy" is decreased. Why do think he wouldn't be able to cover expenses for the rest of his life with a 100% stock allocation? I'm not suggesting that, but theres a very real chance of this being totally fine. "General consensus around here" really doesn't matter. Even a 50% haircut followed by a rebound may be enough, with social security and not doing the things that 80 year olds do like skydiving and going on expensive vacations and such.

First off, $3M is not "HNW". It's just average wealthy. I'm fortunate to be substantially better off than that, but the HNW club starts at a minimum of two commas. If he had $10M, 90/10 AA would be fine. If I were your dad, I'd want a minimum of $1M in safe assets to cover LTC, medical treatments, etc. not all of which may qualify for medicare/insurance. I did not expect my mom, who had a heart attack at 60, to live into her 90's -- but she did, and late in life expenses were substantial. Going to a more conservative AA for the duration of your dad's life is prudent. 60/40 is not hiding in a bunker. If things work out well, you can increase when he passes. You haven't missed out on much. But if you need to spend down, in a down market, at a very high AA, it will be painful. There's an old saying in aviation: "It is better to be on the ground wishing you were in the air - than in the air wishing you were on the ground."

* corrected typos

Oh boy. Personal finance is personal. Thanks for the clarification's

[mikeyzito22]

I would significantly up his fixed income to ensure all needs are covered in his lifetime. 60/40 is about as agressive as I'd go. I'm not sure what you mean by "4 funds". "3 funds" is the default boglehead option, and general concensus around here is that Vanguard places too much weight on international (and that international bonds are unnecessary). I would use high quality fixed income - i.e., short term treasury index and CD's as opposed to Total Bond. or, in the alternative, a 10 year TIPS ladder to fund all essential spending.

Can you clarify? He's 78 and has over 3 million. Also, "his life life expectancy" is decreased. Why do think he wouldn't be able to cover expenses for the rest of his life with a 100% stock allocation? I'm not suggesting that, but theres a very real chance of this being totally fine. "General consensus around here" really doesn't matter. Even a 50% haircut followed by a rebound may be enough, with social security and not doing the things that 80 year olds do like skydiving and going on expensive vacations and such.

First off, $3M is not "HNW." It's just average wealthy. The HNW club starts at $10M which, if he had, a 90/10 AA would be fine. If I were your dad, I'd want a minimum of $1M in safe assets to cover LTC, medical treatments, etc. not all of which may qualify for medicare/insurance. I did not expect my mom, who had a heart attack at 60, to live into her 90's -- but she did, and late in life expenses were substantial. Going to a more conservative AA for the duration of your dad's life is prudent. 60/40 is not hiding in a bunker. If things work out well, you can increase when he passes. You haven't missed out on much. But if you need to spend down, in a down market, at a very high AA, it will be painful. There's an old saying in aviation: "It is better to be on the ground wishing you were in the air - than in the air wishing you were on the ground."

* corrected

Thanks for the claification. When I put "average wealthy" 3mil into fire calc for a 78 year old, it seems that LTC included would be perfectly fine as well with a higher AA. This is what got me about your comment....

"But if you need to spend down, in a down market, at a very high AA, it will be painful."

I'm wondering if 80 year olds or above really even think of whether it will be painful for LTC or inheritance. Don't we all reach a spot where we are just cool with what we have? Will anyone care about portfolio visualizer or such if the situation arises, or is it you (the son or daughter portfolio manager) that bears the "pain," as you call it? Certainly Bogleheads saved for these exact events. Going back to the OP, there is no LTC in the situation, so its a mute point. Cheers!

[Outer Marker]

When I put "average wealthy" 3mil into fire calc for a 78 year old, it seems that LTC included would be perfectly fine as well with a higher AA. This is what got me about your comment....

"But if you need to spend down, in a down market, at a very high AA, it will be painful."

I'm wondering if 80 year olds or above really even think of whether it will be painful for LTC or inheritance. Don't we all reach a spot where we are just cool with what we have? Will anyone care about portfolio visualizer or such if the situation arises, or is it you (the son or daughter portfolio manager) that bears the "pain," as you call it? Certainly Bogleheads saved for these exact events.

My mom was well aware of her finances and looked at her quarterly Vanguard statements right up until the end in her late 80's. Even though she had me as a solid backstop, she wanted her financial independence and got panicky in steep market declines. I moved her from Wellington (70/30) to Target Retirement income (30/70) plus a stockpile of CD's and she slept much better. There's a non-zero chance OP's dad could have substantial needs before passing - which needs to be weighed more heavily than investing for the next generation. Even with the next generation in mind, it's clearly sub optimal to have to sell off equities in the face of a 50% market decline. Better to decrease Dad's personal AA and up OP's rather than taking so much risk on Dad's side if you're trying to maximize overall utility. Personally, I'm sitting at 70/30 where I've been for a very long time -- with no plans to reduce -- but I see no need to take additoinal risk beyond that point. 90/10 seems excessive for OP's Dad in the circumstances.

[mikeyzito22]

When I put "average wealthy" 3mil into fire calc for a 78 year old, it seems that LTC included would be perfectly fine as well with a higher AA. This is what got me about your comment....

"But if you need to spend down, in a down market, at a very high AA, it will be painful."

I'm wondering if 80 year olds or above really even think of whether it will be painful for LTC or inheritance. Don't we all reach a spot where we are just cool with what we have? Will anyone care about portfolio visualizer or such if the situation arises, or is it you (the son or daughter portfolio manager) that bears the "pain," as you call it? Certainly Bogleheads saved for these exact events.

My mom was well aware of her finances and looked at her quarterly Vanguard statements right up until the end in her late 80's. Even though she had me as a solid backstop, she wanted her financial independence and got panicky in steep market declines. I moved her from Wellington (70/30) to Target Retirement income (30/70) plus a stockpile of CD's and she slept much better. There's a non-zero chance OP's dad could have substantial needs before passing - which needs to be weighed more heavily than investing for the next generation. Even with the next generation in mind, it's clearly sub optimal to have to sell off equities in the face of a 50% market decline. Better to decrease Dad's personal AA and up OP's rather than taking so much risk on Dad's side if you're trying to maximize overall utility. Personally, I'm sitting at 70/30 where I've been for a very long time -- with no plans to reduce -- but I see no need to take additoinal risk beyond that point. 90/10 seems excessive for OP's Dad in the circumstances.

Sure, take it down in the AA. I get it. I just hate to see people "panicking" when life is mostly good.

[corn18]

When I put "average wealthy" 3mil into fire calc for a 78 year old, it seems that LTC included would be perfectly fine as well with a higher AA. This is what got me about your comment....

"But if you need to spend down, in a down market, at a very high AA, it will be painful."

I'm wondering if 80 year olds or above really even think of whether it will be painful for LTC or inheritance. Don't we all reach a spot where we are just cool with what we have? Will anyone care about portfolio visualizer or such if the situation arises, or is it you (the son or daughter portfolio manager) that bears the "pain," as you call it? Certainly Bogleheads saved for these exact events.

My mom was well aware of her finances and looked at her quarterly Vanguard statements right up until the end in her late 80's. Even though she had me as a solid backstop, she wanted her financial independence and got panicky in steep market declines. I moved her from Wellington (70/30) to Target Retirement income (30/70) plus a stockpile of CD's and she slept much better. There's a non-zero chance OP's dad could have substantial needs before passing - which needs to be weighed more heavily than investing for the next generation. Even with the next generation in mind, it's clearly sub optimal to have to sell off equities in the face of a 50% market decline. Better to decrease Dad's personal AA and up OP's rather than taking so much risk on Dad's side if you're trying to maximize overall utility. Personally, I'm sitting at 70/30 where I've been for a very long time -- with no plans to reduce -- but I see no need to take additoinal risk beyond that point. 90/10 seems excessive for OP's Dad in the circumstances.

Sure, take it down in the AA. I get it. I just hate to see people "panicking" when life is mostly good.

My MIL is 82, in poor health in assisted living and she looks at her brokerage statement every month and is always worried about running out of money. She has $3M. I'm glad I am not her money manager.

[mikejuss]

My 78 yo father had a longtime advisor at MS who recently retired. He has asked me to manage his 3.4M portfolio.

Why doesn't your father want to work with another adviser? I wouldn't do this, OP.

[Outer Marker]

Sure, take it down in the AA. I get it. I just hate to see people "panicking" when life is mostly good.

There's certainly no need to panic here. Things are very good -- but this is also a very good time to shore up financial security with the ample resources that have been amassed. Not to sound like a market timer, but we are again pushing all-time highs and U.S. equities in particular are expensive. My mom's conservative AA served her well during the 2020 covid decline, and I benefited fortuitously by putting those inherited assets into all equities shortly after the market bottomed when she passed in the spring of 2020. She would have been very depressed seeing her life savings decline percipitously in those final months.

[Outer Marker]

His portfolio is evenly split in 1.7M taxable/1.7M SEP IRA.

An important piece of low hanging fruit I would look at is converting a substantial portion of the SEP IRA to Roth each year, probably up to the top of the 24% bracket. You'll inherit these assets tax free and have 10 years of further tax free growth ahead before you have to withdraw them.

[bsteiner]

...

Great point about the IRMAA. He is already in the doghouse with the churn from his MS account (30-45k in cap gains per year). I complained to his advisor about this with no effect. I am hoping to significantly improve this with an index fund approach (and not do any moves that will trigger major LTCGs).

Why is your father following that advice?

[FoundingFather]

First off, $3M is not "HNW." It's just average wealthy. The HNW club starts at $10M...

So, when I peak at the empower data for average net worth by age, I get $1.5 million (mean) and $350k (median) for someone of his age. I favor median as the more applicable measure of center for things of this type, as it does a better job of eliminating the skew from those with outlier wealth.

So, maybe I am just being very dense, but if someone has eight times as much money as average, that probably qualifies as high net worth, right? Other data that I have peaked at says that $3M puts someone at about the 95th percentile for wealth. That's a bit more than average, correct?

Founding Father