FIRNormally – Parent’s Case Study (come inside for a 2.57% exp ratio!) - Cancer

[KiloRomeo]

Hey folks. I generally don’t mix finances and family but my Dad was recently diagnosed with Lymphoma and I was asking questions about their insurance. That led to a conversation about finances and they asked if I wanted to take a look because they knew I was good at this kind of thing.

After looking through their records I was proud for my parents setting aside a decent amount of change early on with a single income household but I became angry at some of the guidance they received and a missed opportunity on some good market conditions since the 80s.

I’m reaching out because I know very little about annuities and life insurance policies. My parents are getting closer to retirement/ semi retirement (5-10 years) and with my dad being sick I want to make sure we chose the right path. In the chart below you can see their holdings. They also have significant cash holdings which I’m going to get them to move to a Cap 360 savings account.

Some details:
Age: ~62
Very little debt
Early stages of cancer treatment – appears to be a positive outlook
~95k household income


My plan:

Dad’s 401k -> Stays put, the only reasonable investment
Dad’s IRA – Moves to a Vanguard IRA account – invests in the Vanguard 2020 Target fund
Mom’s IRA - Moves to a Vanguard IRA account – invests in the Vanguard 2020 Target fund
Mom’s 2nd IRA - Moves to a Vanguard IRA account – invests in the Vanguard 2020 Target fund
Taxable Account – Biggest priority – Moves to a Vanguard Taxable Account – Invests in the Vanguard 2020 Target fund


As for the annuities and the life insurance policy I have no idea what to here because I don’t fully understand the investments. My CFP friend gave me a form to fill out with the companies to find out more information about the investments. After I get that information and some feedback from you guys we can figure out where to park them.

What do you guys think? Does my plan seem fair? Any thoughts on the life insurance policy or the annuities?

[KiloRomeo]

Hmm seems like the website makes the img pretty small to read. Let's try this:

http://i50.photobucket.com/albums/f320/blueovalstanggt/2016/Parents%20Finances2_zpsprde03sr.png

[ShoulderThingThatGoesUp]

The good news is, he can just bring his statement to Schwab, fill out a few forms that they'll be very happy to help with, and move it over. Then, sell everything and put it in some of Schwab's Vanguard-style ETFs with comparable (usually trivially lower) expense ratios. I think you might as well keep their life simple and make everything be at Schwab rather than make them learn a whole other company's system.

I don't know anything about those annuities, but I know you can get rid of that Morgan Stanley account.

[KiloRomeo]

The good news is, he can just bring his statement to Schwab, fill out a few forms that they'll be very happy to help with, and move it over. Then, sell everything and put it in some of Schwab's Vanguard-style ETFs with comparable (usually trivially lower) expense ratios. I think you might as well keep their life simple and make everything be at Schwab rather than make them learn a whole other company's system.

I don't know anything about those annuities, but I know you can get rid of that Morgan Stanley account.

I was looking at that. Looks like .59 with Schwab or .14 with Vanguard for a 2020 target fund. Being they aren't too far from retirement it may not matter much.

They haven't learned any companies system....they are old school and just show up in person at the branches. Maybe I'll keep the Schwab stuff with Schwab and move the MS to Vanguard.

[Catbert]

After you get the info back from the annuity/whole life insurance companies, can you ask your CFP friend for help?  Pay him.  You won't get straight answers from insurance sales people.  They may not actually lie to you, but they will  give mis-leading answers and illustrations.  Most importantly they will want you to sell what you have and buy new for them.

The good news it that some of the older annuities are pretty good.  In 1992 no one envisioned that bank accounts would pay as little as they do now so they may have interest floors higher than now. 

"Surrender charges" are what they charge you if you give up the annuity early.  Generally 25 years later (now) you would have long passed the surrender period.

Sounds like the whole life insurance premiums are being paid out of the investment gains.

Seriously, pay your friend for his time to figure this out.  If not his speciality then ask for a referral to someone who understands but doesn't sell annuities. 

P.S.  DH (older than your Dad) was diagnosed with stage 4 Diffuse Large B Cell Lymphoma two years ago.  After 6 rounds of chemo is cancer free with a good prognosis.  Good luck with your Dad.   

[Cassie]

If they can afford it now would be a good time for your Dad to retire. He can focus on his health and certainly deserves to at 62.

[ShoulderThingThatGoesUp]

The good news is, he can just bring his statement to Schwab, fill out a few forms that they'll be very happy to help with, and move it over. Then, sell everything and put it in some of Schwab's Vanguard-style ETFs with comparable (usually trivially lower) expense ratios. I think you might as well keep their life simple and make everything be at Schwab rather than make them learn a whole other company's system.

I don't know anything about those annuities, but I know you can get rid of that Morgan Stanley account.

I was looking at that. Looks like .59 with Schwab or .14 with Vanguard for a 2020 target fund. Being they aren't too far from retirement it may not matter much.

They haven't learned any companies system....they are old school and just show up in person at the branches. Maybe I'll keep the Schwab stuff with Schwab and move the MS to Vanguard.

Apparently there's a big target date premium there; I wasn't aware of that. Their broad-market fund SCHB is 0.03%, I think.

[KiloRomeo]

If they can afford it now would be a good time for your Dad to retire. He can focus on his health and certainly deserves to at 62.

Normally I would agree, and he may slightly retire but he has kind of an unusual job that's very enjoyable and he will likely keep doing this part time forever. Plus he needs the insurance

[KiloRomeo]

The good news is, he can just bring his statement to Schwab, fill out a few forms that they'll be very happy to help with, and move it over. Then, sell everything and put it in some of Schwab's Vanguard-style ETFs with comparable (usually trivially lower) expense ratios. I think you might as well keep their life simple and make everything be at Schwab rather than make them learn a whole other company's system.

I don't know anything about those annuities, but I know you can get rid of that Morgan Stanley account.

I was looking at that. Looks like .59 with Schwab or .14 with Vanguard for a 2020 target fund. Being they aren't too far from retirement it may not matter much.

They haven't learned any companies system....they are old school and just show up in person at the branches. Maybe I'll keep the Schwab stuff with Schwab and move the MS to Vanguard.

Apparently there's a big target date premium there; I wasn't aware of that. Their broad-market fund SCHB is 0.03%, I think.

Yeah I talked to them on the phone and it seems like the "intelligent shares" or "intelligent portfolio " is much more reasonable.

[ooeei]

The good news is, he can just bring his statement to Schwab, fill out a few forms that they'll be very happy to help with, and move it over. Then, sell everything and put it in some of Schwab's Vanguard-style ETFs with comparable (usually trivially lower) expense ratios. I think you might as well keep their life simple and make everything be at Schwab rather than make them learn a whole other company's system.

I don't know anything about those annuities, but I know you can get rid of that Morgan Stanley account.

I was looking at that. Looks like .59 with Schwab or .14 with Vanguard for a 2020 target fund. Being they aren't too far from retirement it may not matter much.

They haven't learned any companies system....they are old school and just show up in person at the branches. Maybe I'll keep the Schwab stuff with Schwab and move the MS to Vanguard.

If they already use Schwab and prefer going in person, I say take the hit and put it in Schwab.  If you really don't like the ER, put it in a couple of funds that simulate the target date fund.  To me an extra .4% ER on 15% of their portfolio seems worth it to simplify at this point.