Author Topic: 66-yr-old sister ready to start investing  (Read 1520 times)

mousebandit

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66-yr-old sister ready to start investing
« on: July 26, 2018, 01:08:18 PM »
I have a question regarding my older sister, she's about to turn 66, who hasn't been a saver or investor throughout her life, but is now ready to start. 

She lives with her long-time partner in Kauai, not married, and finances are kept separate.  He is a small business owner, just starting to think about retiring, although he's a workaholic and to sell his business would be a huge thing for him.  He's very successful, although he doesn't trust the market and doesn't invest.  Works like crazy, I believe he keeps most of the money invested in the business, and a lot stashed in cash.  (Just so you have an idea of his mindset.)  She has very little income - about $900/mo between her social security and a little paycheck he pays her from the shop, which is primarily to keep her on the health insurance, I believe.  The majority of her living expenses are covered by the partner, although she pays for her own car insurance, minimal clothing, and buys some organic groceries, etc.  She does have some debt that takes nearly half of the income, but she has been inspired by all the changes we have made and wants to make changes in her life, too.  She is gearing up to start a side-gig which I think will eventually bring her in a solid little income and is something that she could realistically do for years to come.   For now, she wants to get started by committing to a monthly deposit in a Vanguard account from her fixed income, then add to that as her side gig starts producing.  I think she could be looking at 5-10 years before she would ever withdraw from the accounts.  She is super healthy, and we're a long-lived bunch of females, too. 

So, first question - since she is already 66, can she still use retirement accounts for investing?  I'm thinking ROTH IRA, unless her partner has a 401k plan for employees (which I doubt). 

Second - would she still go with like VTSAX, or something different since the time frame is so abbreviated?

Anything else I should be thinking about, but am totally missing? 

THANKS!

sokoloff

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Re: 66-yr-old sister ready to start investing
« Reply #1 on: July 26, 2018, 01:12:10 PM »
If she has debt taking nearly $500/mo, that’s probably the first priority to tackle.

Financial.Velociraptor

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Re: 66-yr-old sister ready to start investing
« Reply #2 on: July 26, 2018, 01:25:07 PM »
What is the interest rate on the debt?  That is almost certainly the surest bet.

mousebandit

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Re: 66-yr-old sister ready to start investing
« Reply #3 on: July 26, 2018, 01:31:02 PM »
Yes, it's a B of A credit card, so I'm sure it's not low-interest.  She has been paying $400/mo on it, but I don't know the total balance.  I'll ask her.  Do you think she should do any investing/saving prior to paying it off?  Or just put all available funds into it?  Her thoughts were to put $100/mo into Vanguard, and get serious about paying off the cc, then send everything off to Vanguard. 

abhe8

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Re: 66-yr-old sister ready to start investing
« Reply #4 on: July 26, 2018, 01:35:05 PM »
She is a good candidate for Dave Ramsey baby steps. Build up a $1000 emergency fund, then pay off the credit card, then invest.

sokoloff

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Re: 66-yr-old sister ready to start investing
« Reply #5 on: July 26, 2018, 01:37:18 PM »
If the debt is anything over 6%, she should not invest so much as thin dime in Vanguard prior to paying it off, IMO.

My only exception to that would be based on psychology, not on math. If she’s going to be willing to set up some kind of automatic investment plan AND that’s the only way she’ll ever invest AND she’s ok with losing money vs paying off the card faster, ONLY then consider investin before killing the balance. She will be much better off when “of course I pay off the credit card EVERY MONTH” is her new normal.

mousebandit

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Re: 66-yr-old sister ready to start investing
« Reply #6 on: July 26, 2018, 01:38:11 PM »
Copy that! 

For when the debt is paid off - is going with a traditional IRA still allowable for her, and the best route? 

Radagast

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Re: 66-yr-old sister ready to start investing
« Reply #7 on: July 26, 2018, 01:38:38 PM »
No way. Credit card debt is the worst. Personal Enemy #1. Pay that down ASAP before any other diversions of money whatsoever. Except rice and beans and maybe oatmeal (not organic either). No investing until CC debt is gone. To the above poster, also no emergency fund at all. If there is an emergency she already has a handy credit card with $1,000 higher limit than it used to have and same ol' interest rate. Credit card debt is an emergency.

Rob_bob

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Re: 66-yr-old sister ready to start investing
« Reply #8 on: July 26, 2018, 02:44:44 PM »
She can only contribute to an IRA/Roth from earned income and no more than what the earned income is.

I'm not positive on this but I don't think self employment income can be used either, (99.9% sure), that would have to go into a SEP account.

Frankies Girl

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Re: 66-yr-old sister ready to start investing
« Reply #9 on: July 26, 2018, 04:13:24 PM »
She can only contribute to an IRA/Roth from earned income and no more than what the earned income is.

I'm not positive on this but I don't think self employment income can be used either, (99.9% sure), that would have to go into a SEP account.


Self employed people can contribute to a Roth IRA. The key is earned income, whether from an employer or self employed, if she's reporting that income and worked some sort of job/makes things/selling items to get it, that's the "earned" part.  https://www.nerdwallet.com/blog/investing/retirement-plans-self-employed/

Traditional IRAs are out tho after she turns 70.5 and she will be required to take required minimum distributions out of them as well. Roths are limited to $6,500 per year contribution for her age, and she will have to have earned income of that much at least if she isn't legally married to someone that makes at least that much (spousal IRAs allow for a non-working or under-earning spouse to still make a full contribution to an IRA as long as their income covers the amount contributed to the IRAs for the both of them if they are both making contributions).

She could also have a SEP, but the Roth IRA might be the easiest to get started.

And should go without saying that she needs to pay off any debt at this point, especially ridiculous credit card debt. And then build up an emergency fund of at least a few months and stick it in a good CD or high interest savings account. And during all of this, she needs to get super serious about budgeting and living WAYYY below her means going forward unless she wants to have to keep working til she drops dead.
« Last Edit: July 26, 2018, 04:14:55 PM by Frankies Girl »

Financial.Velociraptor

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Re: 66-yr-old sister ready to start investing
« Reply #10 on: July 26, 2018, 05:47:19 PM »
Yes, it's a B of A credit card, so I'm sure it's not low-interest.  She has been paying $400/mo on it, but I don't know the total balance.  I'll ask her.  Do you think she should do any investing/saving prior to paying it off?  Or just put all available funds into it?  Her thoughts were to put $100/mo into Vanguard, and get serious about paying off the cc, then send everything off to Vanguard.

Good gravy.  Credit card debt is a screaming hair on fire emergency.  Pay it off first!

MustacheAndaHalf

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Re: 66-yr-old sister ready to start investing
« Reply #11 on: July 27, 2018, 10:30:13 AM »
It sounds like she wants to gloss over being in debt, and skip right to getting investment money.

This is just a guess, but she might prefer Suze Orman over Dave Ramsey.  Both offer advice on getting your finances in order, and out of debt.  Your sister might also have to decide if she's just going to pay down debt and stop... or if she wants to reach the point where she could afford her own rent and expenses without her partner, if she choose that.

So... maybe debt free first, ... then see if she wants the ability to be financially independent of others... setting up an emergency fund in cash... and finally having extra cash that suggests the need for investment.  Otherwise you wind up with investments that earn ~8% and credit card bills that consume ~24%, making investing a way to lose -16% a year.

Heckler

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Re: 66-yr-old sister ready to start investing
« Reply #12 on: July 27, 2018, 10:37:23 AM »
Af if you needed it, here is my vote to pay off credit card debt completely, then set up adequate cash emergency fund before investing a dime.

mousebandit

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Re: 66-yr-old sister ready to start investing
« Reply #13 on: July 27, 2018, 03:27:49 PM »
Talked with her some more, and she is on board to handle the credit card debt.  She is aware of bad it is, and just hadn't wanted to discuss it due to the shame.  But she's going to up her payments to $600/mo, and at 15.4% interest, it should be gone in 16 months.  She will also be trying to come up with some other creative ways to get some lump sum payments on it (yard sale, etc).  Not sure if her side gig will produce anything as profit in that time period that shouldn't just be reinvested, so we shall see from that.

Her income is super limited - just $540 social security and $400 from the partner's business.  But, her living expenses are very minimal, so that gives her room to start fixing things.

Ultimately, she would like to be financially independent of her partner, just because it's prudent to do so.  That said, the house will be hers if anything should happen to him, plus a decent amount of cash.  House is worth at least $500k, probably closer to $800k (in Kauai, custom, big, paid off), and she wouldn't stay there, would sell it and move back to the mainland.  However, her goal at this point is just to get her own ducks in a row and become financially literate. 

So, the debt payoff is in progress, then the emergency fund, then start investing.  We shall see how the earned income from the side gig goes.  I was thinking Roth IRA as a spousal contribution, but I wasn't thinking about the fact that they're not actually married.  So, figuring 16 months to pay off the debt, and another 4 months emergency fund, that gives her over a year-and-a-half to get the side gig producing something. 

Or, maybe we will just look at her investing in taxable accounts, and keeping her annual income low enough to avoid much capital gains tax. 

THanks everyone!  I'm very proud of her getting this far!  In our family, she was definitely discouraged from learning anything about finances, or doing anything other than finding a reliable husband and having babies, and it definitely didn't serve her well.  She has a lot of catching up to do, but she is in a good position to do so, and has a very supportive partner. 


sokoloff

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Re: 66-yr-old sister ready to start investing
« Reply #14 on: July 27, 2018, 03:34:10 PM »
If her partner has a "lot stashed in cash", he might be willing to lend her the $9K at 0.5% interest monthly (~6.17% APR).

She wins a lot; he still wins a fair amount over wherever he has cash parked.

I've done that for friends, let alone romantic partners...

K-ice

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Re: 66-yr-old sister ready to start investing
« Reply #15 on: August 05, 2018, 10:24:42 AM »
I hope she isn’t still using that’s credit card.

If she is, does she know every purchase automatically starts paying interest?

Cut it up!

If she still “needs” a card get a new one and pay it in full every month.

Regardless, she should probably shop around and transfer the balance to a lower interest card.

Never make another purchase on a high interest rate card with an unpaid balance.


BTDretire

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Re: 66-yr-old sister ready to start investing
« Reply #16 on: August 06, 2018, 02:25:08 PM »
I'm sorry, did you say her income is $900 a month?
That's $10,800 a year and half of that goes to debt.
I think at 66yrs old, it will be good to just learn to spend the
$900 a month as wisely as possible.

 Even if she does very well, she might be able to save $10,000
over the next five years. That's a nice emergency fund.
Forget about investing, she needs to learn to live frugally.

MustacheAndaHalf

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Re: 66-yr-old sister ready to start investing
« Reply #17 on: August 07, 2018, 01:51:24 AM »
Talked with her some more, and she is on board to handle the credit card debt.  She is aware of bad it is, and just hadn't wanted to discuss it due to the shame.  But she's going to up her payments to $600/mo, and at 15.4% interest, it should be gone in 16 months.
Maybe it would help if she knew where she stands: her credit card debt is below average.  According to nerd wallet, American households average $15,000 in credit card debt, and she's looking at about half that.  In other words, if she starts talking to people, she's going to find a lot of people with more credit card debt than her - if they admit it.

You should visit nerd wallet or some place for statistics on debt, and make sure she knows about it.  Feeling a sense of shame can lead to hiding the behavior when something goes wrong - even though in reality, her situation is very common.

I think it's a mistake to take steps towards investing before she's out of debt.  It assumes everything will go smoothly for the next 16 months of paying off debt.  I think it adds to the sense of shame, and makes getting out of debt seem like it's not the only priority.  It's better to focus on the debt, and leave investment for later.  Even after she's free of debt, she still needs an emergency fund to buffer her against further credit card spending.

After she gets out of debt, and while she's saving for an emergency fund, then it makes sense to discuss investment.  But do it too early, and it might encourage her to keep quiet about any new debt problems she encounters - since you're talking like both of you are past talking about debt, if you discuss investing.