Help me help my dad

[MEJG]

Hello Fellow Mustachians!

My father is retiring this year at 65, after a long, moderately-high earning career. He is single and currently has a nest egg of approximately 3.2M and will collect the max social security benefits based on his lifetime earnings. 

Last year he asked me to help him with managing his investment portfolio.  He's currently invested in a portfolio that mimics the Vanguard 2050 retirement fund.  I chose that, with him, because he has such a large next egg that a more conservative approach isn't needed since his stated goals are to enjoy retirement and also have as much left over when he dies as possible.  My siblings and I have repeatedly encouraged him not worry about any inheritance but it is one of his stated goals.

Now he's asking me how to manage his draw down.  I'm open to any help here- this isn't my area of comfort. While I think it'd be pretty hard for him to overspend with his current position and general yearly spending he does have a tendency to enjoy travel and be *very* generous with gifts and family members (helping more distant relatives with weddings, student loans, house down payments etc).  I want to be able to give him some simple guidelines. He doesn't want to understand the ins and outs- he  has clearly stated he just wants to know what to do.

1) Take SS at full retirement age at 66 - most people don't benefit that much from delaying from what I've read and we cannot predict when people will pass. Further he's going to have huge RMD at 70.5, waiting for SS then too will only increase his taxes
2) Keep yearly expenditures  - INCLUDING his gifting to $120,000 or less per year. 
     2a- I'll help him set up withdraws from investment accounts into his bank account after we discuss if he wants monthly- quarterly - yearly etc.
3) at the end of each year do the math to convert as much from his TIRA into his Roth IRA that keeps his capital gains at 15% - to reduce impact of RMD

Thanks for any insight.

[2Birds1Stone]

This is a large responsibility and I would think hard about how responsible you want to be for your father's finances as he ages.

With $3.2M portfolio + reasonably high SS payments, he could easily withdraw 4% annually till 70 and then take RMD's without ever running out of money.

A few things to consider.

If inheritance is important to him, would it be worth gifting some amount to his heirs during his lifetime? Many on the boglehead forums prefer that to just leaving a huge lump sum when they pass. It allows the giver to see their families enjoy the money while they are still alive.

Are all of his other financial and health matters in order? Power of attorney? Wills? Estate planning?

If you are managing your father's finances, what level of involvement do you wish to have as your father needs increasingly difficult decisions made for him?

There are many things I would look at and consider in this situation, it goes far beyond drawing down his portfolio.

I'm sure many more experienced forum members will chime in.

[scottish]

There's a book I'm reading about how to draw down your portfolio efficiently.

https://www.amazon.com/Living-Off-Your-Money-Retirement/dp/0997403403

I still have to study it carefuly though, so I can't give any direct opinions yet.

My parents are in a similar position with a portfolio in the mid-7 figures.   They don't want anyone's help yet, even though they're both over 80.   Same with DW's parents.    It leaves us (the kids) concerned about scammers and poor portfolio diversification, especially since one of our parents is living in a very expensive nursing home.

I think I'd prefer your scenario where you've been asked to be involved...   that's how we intend to handle things with our kids.

[simonkkkkk]

I read that book and it was amazing!

[MEJG]

This is a large responsibility and I would think hard about how responsible you want to be for your father's finances as he ages.
...
A few things to consider.

If inheritance is important to him, would it be worth gifting some amount to his heirs during his lifetime? Many on the boglehead forums prefer that to just leaving a huge lump sum when they pass. It allows the giver to see their families enjoy the money while they are still alive.

Are all of his other financial and health matters in order? Power of attorney? Wills? Estate planning?

If you are managing your father's finances, what level of involvement do you wish to have as your father needs increasingly difficult decisions made for him?

There are many things I would look at and consider in this situation, it goes far beyond drawing down his portfolio.

I'm sure many more experienced forum members will chime in.

All good things to think about!
He has an appt with his lawyer in March to re-do all his documents. POA, Will, Living will, ect.  He and I have discussed this and we know who in the family will be POA and executer of his will.  My siblings are all also aware.  I've made my opinions on some of the matters (property held 50/50 with other individuals etc. clear- but all those choices are ultimately his).

I and one of my siblings in particular will be intimately involved in decisions going forward- everyone knows this plan.

He has given and plans to continue to give pre-inheritances to individuals.  He has determined that amount, I feel that he isn't maximising the tax efficiency of it but he is giving at levels he is comfortable with- which is what I think is appropriate in any case since its HIS money- not mine.

It is a LOT of money- and he and I had a very frank decision last year before I gave him any input about the ramifications and that I cannot be held responsible if there is a market crash etc. This is just my advice, and I am NOT a professional.  We spoke at length about his risk tolerance, desires for income, and wish to leave an inheritance.   

[MEJG]

There's a book I'm reading about how to draw down your portfolio efficiently.

https://www.amazon.com/Living-Off-Your-Money-Retirement/dp/0997403403

I still have to study it carefuly though, so I can't give any direct opinions yet.

My parents are in a similar position with a portfolio in the mid-7 figures.   They don't want anyone's help yet, even though they're both over 80.   Same with DW's parents.    It leaves us (the kids) concerned about scammers and poor portfolio diversification, especially since one of our parents is living in a very expensive nursing home.

I think I'd prefer your scenario where you've been asked to be involved...   that's how we intend to handle things with our kids.

I read one of the threads here on that book, and considered buying it.  Maybe I should go see if it is at the library yet.  I agree, knowing where he is at and helping has some real advantages.  It helps that my siblings and I all know whats going on and we are all of mostly the same opinions.

[2Birds1Stone]

+1 for "Living Off Your Money"

Got it for Christmas and enjoyed it.

Sounds like you have thought of a lot of the aspects of this. Kudos for helping your father with these important matters.

[Catbert]

Speaking as a 65 year old...
 
Start doing Roth conversions or IRA withdrawals as soon as he retires.  Don't wait for RMDs which will be substantial assuming much of his $3 mil is in tIRA/401k/similar.  (First year is RMD of 3.65%)

Set his positions in taxable accounts to pay out  distributions and internal capital gains rather than auto reinvesting.  That will generate cash w/o any additional taxes.

Spend some time with his accountant to do a general tax outline for the coming years.  What tax bracket to fill up with withdrawals?  Still itemize??  If itemizing donate appreciated stock/mutual funds as charitable contributions?  If making sizable gifts can he do that with appreciated assets (stocks/mutual funds if) taxes are lower on giftee.