Case Study: Retirement Savings Options for My Parents - Guidance Needed

[KatieSSS]

Hello fellow mustachians, I hope this is the right place to post this particular question. It is a case study for my parents. I've been asked by my mother to advise her on retirement savings. Here's the details:

Father is 64, Mother is 61. They are married and file taxes jointly.

Income
Father works full time and earns about $40,000/year.
Mother is self-employed and earns about $20,000/year.
Both are in working-class jobs.

Liabilities
At this time, they have both credit card, mortgage, and car debt. I don't know the exact figures of each debt, but I do know that it will take about $100,000 to pay all of this off. They will actually pay it off in June, but more on that later.

Assets
Father has a 403b with TIAA-CREF - Total value ~$150,000. This is currently all stocks (holy crap awful - I've advised him to get more bonds ASAP).
Mother is self-employed and had an IRA at one point, but cashed it out to pay for something somewhere along the way. She has no individual retirement account.
Both have worked all of their lives and paid into social security.
They will own their home in a few months, which is currently a $110,000 value
Father owns a small 1 acre lot outright that he bought for about $16,000. Nothing currently there right now. Plan is to build something they can rent out. Likelihood of this happening, from my perspective, is slim to none.
Father is ⅕ owner of a farm LLC, with total property in the LLC equaling 600 acres. Recently formed upon the death of one of his parents, so right now the projected revenue from this is around $20,000/year for him, but no actuals have come in.

The big question:
Mother just sold her farmland, which will allow her to payoff their house and credit card debt by June of this year. She has said they will keep the car loan, because that's my dad's responsibility, not her's. She will have a remaining $100,000 that she wants to put away for retirement.

Based on the above details, what would you all recommend she do with the $100,000 she値l receive from the land sale? According to her, that money is not taxed due to some loophole in the land inheritance laws of Iowa. I知 asking you all because she has come to me for my recommendations. First thought was an IRA, but perhaps a mutual fund would be better? Their plan right now is to wait for my dad to retire until my mom is 65, so that she can then qualify for Medicaid/Medicare insurance and not have to depend on being on my dad's insurance. My mom loves her job, but would like to cut back to a part-time workload. She has no plans to ever fully retire. She値l stop working when she can no longer do it, physically.

My parents are a big shining example of anti-mustachian behavior. My mother has seen me pay off all my debt and employee mustachian ways, which has gotten her to come around a bit. She's at least asking the right questions. They are also not very eager to share details with me, so the above is as much as I know.

Looking forward to everyone's suggestions!

Oh, and facepunches are certainly understandable in this situation, but remember that I'm merely the messenger here. I've been frustrated with them for years when it comes to finances and have wanted to throw a million facepunches, believe me!

EDITED TO ADD: A few other details:
Dad still farms as part of the LLC. I don't know what he makes from his actual grain sales, because that varies every year based on expenses (i.e. equipment repairs, fertilizer, grain storage, seed, etc) and the sale price of grain. I wish I knew all of that, but my parents don't share all the details with me.
Dad does not have a 401(k) option at work. Only a 403(b).

[seattlecyclone]

Overall it sounds like if your parents can keep their spending under control, your dad could probably retire right now and your mom could cut back to a part-time schedule like she wants to do.

You said your mom's land sale will basically extinguish their debt (except for the car loan), so I'll consider that transaction done for the purpose of this discussion.

Asset-wise, your parents will have the following:

• A paid-off house,
• $150k in a 403(b) plan,
• $100k in cash from the sale of your mom's farmland, and
• Your dad's share of the farm LLC.

Your mom should invest the $100k in income-producing assets, such as stock or bond index funds (more on that later). That will bring them up to $250k in the markets, which is good for $10k/year at a 4% SWR. Add in $20k/year from your dad's share of the farming LLC, and they should be able to count on $30k/year before Social Security and your mom's part-time work income even come into the picture. It's impossible to predict their Social Security payments without knowing their full history of earning throughout their careers, but it's hard to imagine either of them would receive less than $10k/year if they've been working for most of their adult lives.

So that's at least $50k/year they could spend if they retired right now, plus whatever your mom earns from her part-time work. Could they live on that much? You sound like you have your doubts, but they need to realize that they can either cut their budget back to that level of spending or keep on working forever. There's no third option here.

Their plan right now is to wait for my dad to retire until my mom is 65, so that she can then qualify for Medicaid/Medicare insurance and not have to depend on being on my dad's insurance.

Have your parents priced out an individual plan for your mom through the ACA exchange? Couples with incomes in the $21k-62k range are eligible for subsidized insurance policies through the exchanges, and the insurance companies are not allowed to deny coverage to anyone. Your father should no longer need to keep working for health insurance alone.

Based on the above details, what would you all recommend she do with the $100,000 she値l receive from the land sale?

How to invest the $100k? Tax-deferred retirement accounts (traditional IRA, etc.) aren't that compelling of an option given their age and income. Their existing tax rate is low and there isn't much time for that money to compound before withdrawing it. Your parents are in the 15% tax bracket, which means long-term capital gains and qualified dividends are taxed at 0%. Therefore there's not a whole lot for them to gain by putting the money in a Roth IRA either.

What I would suggest is the following:

• Decide, together with your parents, what a good overall asset allocation between stocks and bonds would be. Take their risk tolerance into account.
• Open a taxable brokerage account with Vanguard and put your mom's $100k in there to start.
• Buy bonds in the 403(b) account first. Bonds are less tax-efficient than stocks because bond interest is taxed at your full tax rate while stock dividends and sales are taxed at the capital gains rate (likely 0% for your parents). Therefore you should put your most tax-inefficient investments in the retirement account and the most tax-efficient investments in a taxable account. Your parents' investable money is currently split 60/40 between your dad's $150k 403(b) account and your mom's $100k from her farm sale. If, for example, you decided on an overall 50/50 split between bonds and stocks in step (1), you would buy $125k of bonds and $25k of stocks in the 403(b) and $100k of stocks in your mom's taxable account, for a total of $125k in bonds and $125k in stocks.
• Have each of your parents open up a Roth IRA with Vanguard. They should max these accounts out every year with their taxable money. It should be legal to put some money into these accounts each year as long as one or both of your parents continues to work. I said earlier that there's not much for your parents to gain by using a Roth IRA, which is true. However, if they pass away with assets remaining in a Roth IRA, these funds can continue to grow tax-free after you and your parents' other heirs inherit the account. It's their money to use during their retirement if they want, but they might as well plan for the best possible outcome just in case they don't live long enough to spend it all.
• When your dad retires, have him roll over his 403(b) account to a traditional IRA with Vanguard. Vanguard likely offers lower-fee investment options than his 403(b) account with TIAA-CREF, and it should be much more convenient for them to have all of their money in one place anyway.
• After you roll over the 403(b) to a traditional IRA, consider rolling it over into your dad's Roth IRA, a little bit every year. The amount should not be enough to push them above the top of the 15% tax bracket for the year. The benefit of this is twofold. First, this will lower their required minimum distributions from the traditional IRA in future years. This will allow them more control over their taxable income and allow more of their principal to remain in their tax-sheltered accounts for longer. Secondly, once the money is in the Roth IRA, it can pass to heirs and grow tax-free, as I mentioned before.
• During retirement, they should spend their taxable money (from the taxable brokerage account, farm LLC payments, social security, required minimum distributions, and mom's work income) first. Leave the Roth funds and traditional IRA funds (except the RMD money) to grow tax sheltered until later in retirement.

[Argyle]

Note that they can only put $6500 each into a Roth each year.  Does your dad's work offer a 401(k)?

[KatieSSS]

Note that they can only put $6500 each into a Roth each year.  Does your dad's work offer a 401(k)?

No, my dad's work does not offer a 401(k). Just a 403(b) option.

[KatieSSS]

Overall it sounds like if your parents can keep their spending under control, your dad could probably retire right now and your mom could cut back to a part-time schedule like she wants to do.

And there's the rub. I don't believe that is possible. At least not based on what I have seen from them my entire life. Sure, people can change, but they have to want to. I think my mom sees that things need to change because she is the one that deals with their finances. My dad, on the other hand, is perfectly fine ignoring the realities of spending money. As an example, my mom told me that my dad uses the almost-maxed out credit card to wash his pickup truck a few times a week. He doesn't realize that he's only adding to the interest and making it harder for my mom to pay down the cards. And of course this doesn't even speak to the obvious. Rain = free car wash. But I digress...

Your mom should invest the $100k in income-producing assets, such as stock or bond index funds (more on that later). That will bring them up to $250k in the markets, which is good for $10k/year at a 4% SWR.

How long are you figuring it will take to get to $250k from $100k?

Add in $20k/year from your dad's share of the farming LLC, and they should be able to count on $30k/year before Social Security and your mom's part-time work income even come into the picture.

I wish I knew if this $20k/year was constant, but for now it is just an estimate. There is always the possibility that there will be a "bad year" farming, which would cause the income for each shareholder to drop (or rise, if it is a good year).

So that's at least $50k/year they could spend if they retired right now, plus whatever your mom earns from her part-time work. Could they live on that much? You sound like you have your doubts, but they need to realize that they can either cut their budget back to that level of spending or keep on working forever. There's no third option here.

I think they could live on $50k/year easily if they reigned in their spending. I've also been trying to convince them that they need to sell their house sometime in the next 10 years and move to a smaller, more manageable space, like a condo or duplex. Both of my parents have health problems that makes climbing stairs difficult, and their house is full of stairs. If they moved to a smaller, and thus cheaper place, they could buy it outright and probably profit a good $20k ++ from selling their 3 bedroom house.

Have your parents priced out an individual plan for your mom through the ACA exchange? Couples with incomes in the $21k-62k range are eligible for subsidized insurance policies through the exchanges, and the insurance companies are not allowed to deny coverage to anyone. Your father should no longer need to keep working for health insurance alone.

They have not priced out an individual plan through the ACA exchange. I honestly don't think they've even entertained the idea. My parents love the benefits of my dad's insurance, so I think that alone is more important to them than retiring. They have had a lot of surgeries during the years that my dad has had this insurance and I've been shocked at how little they have had to pay out of pocket. I think with them they are always looking for the easiest way, so in this case investigating another insurance option just overwhelms them. But I'll mention it to my mom and at least get her thinking about the ACA.

Based on the above details, what would you all recommend she do with the $100,000 she値l receive from the land sale?

What I would suggest is the following:

• Decide, together with your parents, what a good overall asset allocation between stocks and bonds would be. Take their risk tolerance into account.
• Open a taxable brokerage account with Vanguard and put your mom's $100k in there to start.

Thank you for this! Very, very helpful!

I recently used the Vanguard tools to quiz my mom and assess her risk tolerance. She was on the moderate to low-risk side. When we open the taxable brokerage account at Vanguard for the $100k, that means any interest earned is capital gains? Or is it considered earned income?

• Buy bonds in the 403(b) account first. Bonds are less tax-efficient than stocks because bond interest is taxed at your full tax rate while stock dividends and sales are taxed at the capital gains rate (likely 0% for your parents). Therefore you should put your most tax-inefficient investments in the retirement account and the most tax-efficient investments in a taxable account. Your parents' investable money is currently split 60/40 between your dad's $150k 403(b) account and your mom's $100k from her farm sale. If, for example, you decided on an overall 50/50 split between bonds and stocks in step (1), you would buy $125k of bonds and $25k of stocks in the 403(b) and $100k of stocks in your mom's taxable account, for a total of $125k in bonds and $125k in stocks.

My initial recommendation to my parents was to reallocate my dad's 403(b) to be a 60/40 split between bonds and stocks. I told them the "% of bonds should equal your age" rule and they seemed to get that. Baby steps, here!

• Have each of your parents open up a Roth IRA with Vanguard. They should max these accounts out every year with their taxable money. It should be legal to put some money into these accounts each year as long as one or both of your parents continues to work. I said earlier that there's not much for your parents to gain by using a Roth IRA, which is true.

If they can't (or choose not to) save enough to max out a Roth IRA every year, would it be better for them to open a Traditional so they can avoid taxes on the money? I'm not confident they will put away the max in each account. I know they don't max out my dad's 403(b). My mom does want to up those contributions, though, once they no longer have a house payment.

Overall, I think that if I can at least get this $100/k in a good account for them, I'll have them well on their way to being better off than they were before. They joke that I am their financial adviser and that I should just control all of their money and give them an allowance. While that is a nice compliment, it really does burden me, as their only child, to make sure that they are financially stable. If they didn't have my help, I don't know what they would do.[/list]

[seattlecyclone]

How long are you figuring it will take to get to $250k from $100k?

I'm saying they already have $250k, between the $150k in the 403(b) and the $100k from your mom's farmland. Consider this money as a unit when implementing their asset allocation. If they want to do 60% bonds and 40% stocks, put all the bonds in the 403(b) and all the stocks in the taxable account like I mentioned previously, for tax efficiency.

I recently used the Vanguard tools to quiz my mom and assess her risk tolerance. She was on the moderate to low-risk side. When we open the taxable brokerage account at Vanguard for the $100k, that means any interest earned is capital gains? Or is it considered earned income?

Bond interest is taxed the same as earned income. Stock dividends are generally taxed at the capital gains rate (likely 0% for your parents). This is why you should weight the 403(b) account more heavily toward bonds than the taxable account if at all possible.

If they can't (or choose not to) save enough to max out a Roth IRA every year, would it be better for them to open a Traditional so they can avoid taxes on the money?

As long as they have money in the taxable account and some income from work, they'll be allowed to put money in a Roth IRA. There's no age limit on Roth contributions, they just have to have some earned income during that year. Whether they actually will do this is another question entirely. As I mentioned earlier, a traditional IRA doesn't make much sense for them because they're already in the 15% tax bracket and they're likely to stay there during retirement with their 403(b) withdrawals, farming income, and mom's part-time work income. With a Roth account your parents will probably save some money on taxes during retirement compared to a taxable account (especially if they have a lot of bond income). The continued tax-free growth in your hands if your parents pass away before they spend the money is potentially even more valuable.

Overall, I think that if I can at least get this $100/k in a good account for them, I'll have them well on their way to being better off than they were before. They joke that I am their financial adviser and that I should just control all of their money and give them an allowance. While that is a nice compliment, it really does burden me, as their only child, to make sure that they are financially stable. If they didn't have my help, I don't know what they would do.

It's good that you're looking out for them. I suggested a lot of things as an overall plan, but just take it one step at a time. The first thing should absolutely be to get that $100k working for them in some sort of income-producing investment. That's one of the biggest and most impactful changes you can make. After that, you're just optimizing.

[KatieSSS]

How long are you figuring it will take to get to $250k from $100k?

I'm saying they already have $250k, between the $150k in the 403(b) and the $100k from your mom's farmland. Consider this money as a unit when implementing their asset allocation. If they want to do 60% bonds and 40% stocks, put all the bonds in the 403(b) and all the stocks in the taxable account like I mentioned previously, for tax efficiency.

Oh - got it! I don't know why I didn't get that....

Bond interest is taxed the same as earned income. Stock dividends are generally taxed at the capital gains rate (likely 0% for your parents). This is why you should weight the 403(b) account more heavily toward bonds than the taxable account if at all possible.

Thank you, that makes sense. Now if I can just get my dad to make the phone call to get more bonds in his 403(b)! Too bad my mom can't do it, she's more on board with taking care of financial issues than he is.

If they can't (or choose not to) save enough to max out a Roth IRA every year, would it be better for them to open a Traditional so they can avoid taxes on the money?

As long as they have money in the taxable account and some income from work, they'll be allowed to put money in a Roth IRA. There's no age limit on Roth contributions, they just have to have some earned income during that year. Whether they actually will do this is another question entirely. As I mentioned earlier, a traditional IRA doesn't make much sense for them because they're already in the 15% tax bracket and they're likely to stay there during retirement with their 403(b) withdrawals, farming income, and mom's part-time work income. With a Roth account your parents will probably save some money on taxes during retirement compared to a taxable account (especially if they have a lot of bond income). The continued tax-free growth in your hands if your parents pass away before they spend the money is potentially even more valuable.

Excellent, I think I have a good idea now of what their first three steps should be.

1. More bonds in the 403 (b)
2. Put the $100k into a taxable brokerage account at Vanguard
3. Get them to open two Roth IRAs (or just one - I might call it a "win" if I can get one in my mom's name since she would be better at managing it) and contribute as much as they can a year.

It's good that you're looking out for them. I suggested a lot of things as an overall plan, but just take it one step at a time. The first thing should absolutely be to get that $100k working for them in some sort of income-producing investment. That's one of the biggest and most impactful changes you can make. After that, you're just optimizing.

Yes, once that money comes in around June/July, I'll recommend they open up a Vanguard account asap. At this point the only thing they can really do is tweak the 403(b) investments to protect them from any massive shifts in the market between now and June.

[MayDay]

This is an interesting case study from me, because I am from Iowa and have several family members and friends that inherited farmland and dealt with it in different ways.  Some sold, some is in a family LLC that disallows selling the land (some kind of trust in place maybe?  I don't know the legal details), some rent out the land, some have a profit sharing arrangement with a renter who pays no rent but splits the profits, etc, etc.  In all cases the inherited land has been a sizable chunk of $$$, up to multi-millions in some cases. 

This might be more than you want to share, but what town are your parents in?  I have a decent idea of COL in IA and I think depending on the area, with 2 older adults, they ought to be able to get their housing costs reallllly low.  But that depends on their willingness to do so, of course.  My parents live in IA, are only in their mid 50's, but really have no excuse to be owning a 3 floor 3000 sq ft house with my mom already starting to have arthritis problems.  But my siblings and I have had no luck convincing them to downsize to a one level small house or condo.  They are in Ames. 

I do think your parents are well set up between SS, interest on the 100K, and the 150K your dad has saved.  Plus farm income on top of that.  Really, between all those, they will make as much in retirement as they do now, maybe even more.  So worst case scenario, even if they stay in debt or get back into debt, they can probably keep managing the payments on the debt for 10 or 20 years until they die.  If your dad refuses to lower the spending on the CC, I wonder if your mom would be better off leaving him one maxed out CC, so that he can't do much damage.  Yes they will be paying a lot of interest, but better than paying the whole thing off, and having your dad run it back up.  At least if it is maxed out it limits his ability to drop large chunks of money. 

[KatieSSS]

This is an interesting case study from me, because I am from Iowa and have several family members and friends that inherited farmland and dealt with it in different ways.  Some sold, some is in a family LLC that disallows selling the land (some kind of trust in place maybe?  I don't know the legal details), some rent out the land, some have a profit sharing arrangement with a renter who pays no rent but splits the profits, etc, etc.  In all cases the inherited land has been a sizable chunk of $$$, up to multi-millions in some cases.

The LLC does allow shareholders the possibility to be "bought out" by the other shareholders, but I'm not sure if the land is able to be sold to outside parties in the future. I should eventually know these things, because one day I'll be a 1/5 shareholder myself! That is, if my dad doesn't decide to sell his shares before he dies. One thing I like about the LLC is that the government can't come in and try and claim assets if one of the shareholders owes money through taxes or outstanding debt, etc. The LLC protects the other shareholders in this case. We don't rent any of our land yet - my dad and his brothers and a nephew farm it. There is a profit sharing aspect to it, though. My dad farms about 150 acres where he alone gets 50% of the profit. The other 50% goes to the LLC. This way, my dad is not charged rent. I think at this point the LLC hasn't been around long enough for any family member to receive sizable pay-outs from it yet. One of the shareholders sold, so there is a big loan in place that the LLC is paying back each month.

This might be more than you want to share, but what town are your parents in?  I have a decent idea of COL in IA and I think depending on the area, with 2 older adults, they ought to be able to get their housing costs reallllly low.  But that depends on their willingness to do so, of course.  My parents live in IA, are only in their mid 50's, but really have no excuse to be owning a 3 floor 3000 sq ft house with my mom already starting to have arthritis problems.  But my siblings and I have had no luck convincing them to downsize to a one level small house or condo.  They are in Ames.

Read your PM - you are VERY warm, location-wise :)

I feel you - it has been realllly hard to get my parents to see that they should sell their house in the next 5-10 years. They have to do some pretty major repairs, which is where some of this land-sale money is going to before they have the $100k to put away for retirement.

If your dad refuses to lower the spending on the CC, I wonder if your mom would be better off leaving him one maxed out CC, so that he can't do much damage.  Yes they will be paying a lot of interest, but better than paying the whole thing off, and having your dad run it back up.  At least if it is maxed out it limits his ability to drop large chunks of money.

I think the best thing would be to get him a credit card with a VERY low max. That way, he can't ever charge too much on it to begin with. My mom has always had a hard time getting him to understand that money just doesn't grow on trees. She's not that much better though - her shopping addiction has bordered on "hoarder" status in the past. It is much better now.

[KatieSSS]

Can she turn back around and purchase land for $100k and rent it out to crop producers?

In some areas near Iowa, something like 10 acres can net you 2.5-3k (after taxes) per year, with essentially no management. They would have equity in the land, plus it would bring them at least a few thousand or more, depending on how much acre gets rented. It may not seem like much, but it can be fairly stable. Also, if they have no mortage concerns, they can practically live on that income.

That's not a horrible idea, but I think if she wanted to rent land she would have kept her shares in the land she just sold. I don't think she's interested in renting land as that is what she and her siblings have been doing the last several years. That's just one more property tax she'll have to pay in addition to my dad's land. Also, as you probably guessed, $100k will only buy you about 10 acres of land, and I don't know many farms these days in their area that has just 10 acres available for purchase. Most fields are in sections or 30-40 acres or greater, so if someone is going to sell their land they will usually sell the whole lot of it. I think 10 acres could have been a good divider when we still farmed something other than corn and soybeans in Iowa. But as it stands right now, "big farming" is taking over and at least in their area, there are very few smaller, organic or holistically-run farms. I know of one that is maybe 30 miles away? Everything else is just miles upon miles of corn and soybeans.

[MayDay]

Can she turn back around and purchase land for $100k and rent it out to crop producers?

In some areas near Iowa, something like 10 acres can net you 2.5-3k (after taxes) per year, with essentially no management. They would have equity in the land, plus it would bring them at least a few thousand or more, depending on how much acre gets rented. It may not seem like much, but it can be fairly stable. Also, if they have no mortage concerns, they can practically live on that income.

That's not a horrible idea, but I think if she wanted to rent land she would have kept her shares in the land she just sold. I don't think she's interested in renting land as that is what she and her siblings have been doing the last several years. That's just one more property tax she'll have to pay in addition to my dad's land. Also, as you probably guessed, $100k will only buy you about 10 acres of land, and I don't know many farms these days in their area that has just 10 acres available for purchase. Most fields are in sections or 30-40 acres or greater, so if someone is going to sell their land they will usually sell the whole lot of it. I think 10 acres could have been a good divider when we still farmed something other than corn and soybeans in Iowa. But as it stands right now, "big farming" is taking over and at least in their area, there are very few smaller, organic or holistically-run farms. I know of one that is maybe 30 miles away? Everything else is just miles upon miles of corn and soybeans.

Re. Small farms, the one I know of in your parents' town is the hippy-dippy daughter of a huge farmer- her dad gave her 5 acres out of his 1000 to play farmers market on :). 

Ten acres.  Lolololol.   I laugh sarcastically because it is sad that ten acres is considered nothing.  I think it is sad for the state, that the rural economy is turning into this. 

[Villanelle]

Can she turn back around and purchase land for $100k and rent it out to crop producers?

In some areas near Iowa, something like 10 acres can net you 2.5-3k (after taxes) per year, with essentially no management. They would have equity in the land, plus it would bring them at least a few thousand or more, depending on how much acre gets rented. It may not seem like much, but it can be fairly stable. Also, if they have no mortage concerns, they can practically live on that income.

That's not a horrible idea, but I think if she wanted to rent land she would have kept her shares in the land she just sold. I don't think she's interested in renting land as that is what she and her siblings have been doing the last several years. That's just one more property tax she'll have to pay in addition to my dad's land. Also, as you probably guessed, $100k will only buy you about 10 acres of land, and I don't know many farms these days in their area that has just 10 acres available for purchase. Most fields are in sections or 30-40 acres or greater, so if someone is going to sell their land they will usually sell the whole lot of it. I think 10 acres could have been a good divider when we still farmed something other than corn and soybeans in Iowa. But as it stands right now, "big farming" is taking over and at least in their area, there are very few smaller, organic or holistically-run farms. I know of one that is maybe 30 miles away? Everything else is just miles upon miles of corn and soybeans.

With farming being not the most predictable income stream, I would hesitate to put more of their overall net worth into farm land when your dad's side of things is already dependent on crop prices, especially in the same area.  Drought or pests or something else that causes profits to drop, and they are going to be hurting.  I think diversification is important to keep in mind here, so I don't think having her put more money in farming is a great idea. 

[Another Reader]

Your dad owns a 1/5 share in the LLC, which in turn owns 600 acres of farm land.  That's the same as 120 acres.  Farmland prices are at record highs.  At $10,000 an acre, his share is worth $1,200,000.  He's 64 and won't farm for many more years.  The net income on that $1.2MM is paltry and it involves a lot of work.  I don't think you want to move from Washington DC to take up farming.  Maybe it's time to sell.  That money could be invested in other assets that would provide them a nice income for the rest of their lives and then pass to you, which I would guess is what your folks would want.

[KatieSSS]

Your dad owns a 1/5 share in the LLC, which in turn owns 600 acres of farm land.  That's the same as 120 acres.  Farmland prices are at record highs.  At $10,000 an acre, his share is worth $1,200,000.  He's 64 and won't farm for many more years.  The net income on that $1.2MM is paltry and it involves a lot of work.  I don't think you want to move from Washington DC to take up farming.  Maybe it's time to sell.  That money could be invested in other assets that would provide them a nice income for the rest of their lives and then pass to you, which I would guess is what your folks would want.

Farmland prices are not as high as they were last year. The land would not bring $10,000 an acre now. More like $8,000 and that is on the high end. My mom just went through this and her land is better quality than my dad's.

And no, I don't want to move to take up farming. But in my family it is more than just money. The farmland has been in my family since the 1800s and it is a family business. If my dad wants to sell, he should be the one to make that decision without my influence. My dad would rather see me inherit the share in the LLC than have him take out the money now and risk it being taken up in elderly care costs when he and my mom get old (and perhaps need to be in a very expensive nursing home). Since those are his wishes at this time, selling is not on the table.

[KatieSSS]

Can she turn back around and purchase land for $100k and rent it out to crop producers?

In some areas near Iowa, something like 10 acres can net you 2.5-3k (after taxes) per year, with essentially no management. They would have equity in the land, plus it would bring them at least a few thousand or more, depending on how much acre gets rented. It may not seem like much, but it can be fairly stable. Also, if they have no mortage concerns, they can practically live on that income.

That's not a horrible idea, but I think if she wanted to rent land she would have kept her shares in the land she just sold. I don't think she's interested in renting land as that is what she and her siblings have been doing the last several years. That's just one more property tax she'll have to pay in addition to my dad's land. Also, as you probably guessed, $100k will only buy you about 10 acres of land, and I don't know many farms these days in their area that has just 10 acres available for purchase. Most fields are in sections or 30-40 acres or greater, so if someone is going to sell their land they will usually sell the whole lot of it. I think 10 acres could have been a good divider when we still farmed something other than corn and soybeans in Iowa. But as it stands right now, "big farming" is taking over and at least in their area, there are very few smaller, organic or holistically-run farms. I know of one that is maybe 30 miles away? Everything else is just miles upon miles of corn and soybeans.

With farming being not the most predictable income stream, I would hesitate to put more of their overall net worth into farm land when your dad's side of things is already dependent on crop prices, especially in the same area.  Drought or pests or something else that causes profits to drop, and they are going to be hurting.  I think diversification is important to keep in mind here, so I don't think having her put more money in farming is a great idea.

That's exactly my thought as well, which is why I advised my mom to sell her share and pay off their debt. I'm not going to advocate her buying more land, but if she wanted to I'd help her out with making good decisions on where to buy.

[KatieSSS]

After much cajoling, my parents sat down with my dad's retirement person at work. I had instructed them that they should re-allocate my dad's 403b account to include more bonds. This did not happen.

I was conference called in during the middle of the meeting and learned the following:

• My dad has a Roth 403b option in addition to his defined contribution 403b retirement plan. He has not opened the Roth 403b
• Dad is currently contributing 5% of his salary to the defined contribution 403b, with work contributing 10%. He is fully vested.
• There is some option where my mom can contribute up to $23,000 to my dad's retirement account. The advisor was losing me on this one as I've never heard of this before. I wonder if she merely meant that they could increase my dad's contributions, then use the $100,000 my mom has to live on.
• The adviser recommended that my parents NOT pay off their house because the mortgage interest rate is 4% and low compared to the return they could get by investing more money in TIAA-CREF (my dad's only option through work - more on the funds later). I called immediate bullshit on that, saying my parents bought the house in 1975, have refinanced twice, and have a payment of $1,100 a month, and that a return of 4% guaranteed by paying off the house and getting rid of debt is far better than "maybe" doing well in the stock market the next few years. Also, who in their right mind would tell a bunch of almost-retired people to not own their home? Like they want to have a mortgage payment in retirement.
• The adviser strongly recommended my parents buy into annuities. I was pretty anti that suggestion, and need to look into this more. It works like a pension, but instead of a company promising to pay you a monthly sum from their pocket upon your retirement, you give the company money and they distribute it when you retire, but if there is anything left over when you die, then the company keeps it. I know TIAA-CREF has been in this business for a long time, so it works for some people. The adviser said my parents will likely outlive any funds they could put away in an annuity, meaning that TIAA-CREF will likely end up paying them more than they invested. I don't know if that's a gamble they should take, though. I think my parents would care if money got eaten up by TIAA-CREF instead of going to pay for their funeral expenses/estate settlement/me after their death. 
• The adviser recommended that they keep my dad's 403b account as is, and instead invest my mom's $100,000 in more secure assets like bonds. This would have to be a taxable account, no? Or could it be a Roth IRA? I recall that you want to put bonds in your work retirement accounts since they are pretty tax-inefficient.
• The adviser did say some good things. She lectured my parents on the importance of living within your means during retirement and gave my mom a budget sheet to fill out. I'll be able to go over it with my parents in person soon, which is a plus.

Ok, so that's the general summary of what they discussed yesterday. I talked to my mom after the conference call and asked what she thought of the meeting. My dad said very little as this stuff doesn't really concern him. Or, I should say it doesn't really interest him. He's also just one quiet dude. That means this is pretty much going to be up to mom and I to manage. My mom is still confused on what to do with the $100,000. She is certain, though, that she doesn't want it somewhere where she can easily access it. She is beginning to realize that she tends to spend money if it is easy to access. One thing we did talk about was the fact that they will need to do some major house repairs in the next 5-10 years. I suggested that in that case, she may want to set aside $15,000 of the $100,000 and put it in a high-interest savings if she knows she needs that money for repairs. They technically don't have an emergency fund either, so I figure this could act as that as well as the house-repair fund. It would still leave $85,000 to invest in retirement. The only thing I wonder about is if she really will treat the account with $15k as an e-fund or house-repair fund. I could totally see her taking money out of there to pay for some ridiculousness.

Before I end this long post, I did find out what TIAA-CREF funds my dad has access to in his 403b. He is currently 100% invested in CREF Stock Account (exp. ratio 0.49%). These are the index funds he has access to:

• CREF Equity Index Account (exp. ratio 0.42%)
• TISBX TIAA-CREF Small-Cap Blend Index Fund (exp. ratio 0.16%)
• TILVX TIAA-CREF Large-Cap Value Index Fund (exp. ratio 0.07%)
• TISPX TIAA-CREF S&P 500 Index Fund (exp. ratio 0.06%)
• TCIEX TIAA-CREF International Equity Index Fund (exp. ratio 0.07%)
• TILIX TIAA-CREF Large-Cap Growth Index Fund (exp. ratio 0.07%)
• TRILX TIAA-CREF Lifecycle Index Retirement Income Fund (exp. ratio 0.68%)

The interesting part is when talking with the adviser, I mentioned that it was important that my dad be invested in low-cost funds. She said on average TIAA-CREF has low expense ratios, at 0.5%! I said, well I can beat that with my Vanguard index funds, which consistently get me below 0.1%. She didn't even bring up the above funds with lower expense ratios. She still stuck to the original CREF Stock my dad is in.

Now here are the bond options he has access to:

• PTTRX PIMCO Total Return Fund (exp. ratio 0.46%)
• TGBAX Templeton Global Bond Fund (exp. ratio 0.64%)
• TIHYX TIAA-CREF High-Yield Fund (exp. ratio 0.38%)
• TISIX TIAA-CREF Short-Term Bond Fund (exp. ratio 0.29%)
• WACPX Western Asset Core Plus Bond Fund (exp. ratio 0.46%)
• Variable Annuity - CREF Bond Market Account (exp. ratio 0.44%)
• Variable Annuity - CREF Inflation-Linked Bond Account (exp. ratio 0.44%)

I'll likely take this list over to Bogleheads as well, their knowledge of investments is stellar.

A few other things to note:

• Parents are not as hands on as I am, which means a lot of this is overwhelming them. They are thinking of going to a local TIAA-CREF office outside of my dad's work to do the actual financial planning. This is probably the easiest option for them, but I know that if they go with whatever the adviser there says, they won't likely be making the right choices. On the other hand, they might just do what I tell them. However, that means their success/failure is all on my shoulders if they treat me like their financial adviser. I'm in a bit of a pickle here. I know this will all be worth it, though, and while this process is arduous, it will mean that there won't be as many surprises for me as my parents advance in age and start to forget things.
• Based on the projections they worked out with the adviser they just met with, my dad will need to work another 5-6 years for them to have enough money in retirement.

[MDM]

The adviser strongly recommended my parents buy into annuities. I was pretty anti that suggestion, and need to look into this more. It works like a pension, but instead of a company promising to pay you a monthly sum from their pocket upon your retirement, you give the company money and they distribute it when you retire, but if there is anything left over when you die, then the company keeps it. I know TIAA-CREF has been in this business for a long time, so it works for some people.

Your knee-jerk "anti" response is well founded.  It is possible that a good annuity would be appropriate for your parents, but there are so many inappropriate annuities that the odds are poor.  Plenty of information in this forum and at Bogleheads if you need it.

The adviser said my parents will likely outlive any funds they could put away in an annuity, meaning that TIAA-CREF will likely end up paying them more than they invested. I don't know if that's a gamble they should take, though. I think my parents would care if money got eaten up by TIAA-CREF instead of going to pay for their funeral expenses/estate settlement/me after their death.

So the adviser knows more than the actuaries who structure the payments?  Hmmm...I'm betting not.  Tends to make me disbelieve everything else the adviser said.

Speaking of Bogleheads and retirement, here's an interesting analysis of "when to take SS": http://www.bogleheads.org/forum/viewtopic.php?f=10&t=139402#p2062152.  Part of the post: "For those that have a big enough portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement."  Don't know if your parents meet the part I italicized, but if so you could discuss with them (or at least with your mom).

Your instincts seem good and it appears your parents would be much better served to listen to you than to the adviser.  It might take a while for them to appreciate that - keep up your good work on their behalf and best wishes.

[KatieSSS]

The adviser strongly recommended my parents buy into annuities. I was pretty anti that suggestion, and need to look into this more. It works like a pension, but instead of a company promising to pay you a monthly sum from their pocket upon your retirement, you give the company money and they distribute it when you retire, but if there is anything left over when you die, then the company keeps it. I know TIAA-CREF has been in this business for a long time, so it works for some people.

Your knee-jerk "anti" response is well founded.  It is possible that a good annuity would be appropriate for your parents, but there are so many inappropriate annuities that the odds are poor.  Plenty of information in this forum and at Bogleheads if you need it.

The adviser said my parents will likely outlive any funds they could put away in an annuity, meaning that TIAA-CREF will likely end up paying them more than they invested. I don't know if that's a gamble they should take, though. I think my parents would care if money got eaten up by TIAA-CREF instead of going to pay for their funeral expenses/estate settlement/me after their death.

So the adviser knows more than the actuaries who structure the payments?  Hmmm...I'm betting not.  Tends to make me disbelieve everything else the adviser said.

Speaking of Bogleheads and retirement, here's an interesting analysis of "when to take SS": http://www.bogleheads.org/forum/viewtopic.php?f=10&t=139402#p2062152.  Part of the post: "For those that have a big enough portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement."  Don't know if your parents meet the part I italicized, but if so you could discuss with them (or at least with your mom).

Your instincts seem good and it appears your parents would be much better served to listen to you than to the adviser.  It might take a while for them to appreciate that - keep up your good work on their behalf and best wishes.

Well, they might end up having to wait until my dad is 70. He's 64 now and might work until he's 70. He'd like to retire at 68, but they might not have enough saved. Thanks for the link to that post - I'm going to take a look at it.

[KatieSSS]

Update - my Dad is no longer all in CREF Stock in his 403b, which is a huge relief to me!

Had another call with them and their financial advisor at TIAA-CREF and got them into about a 40% stocks and 60% fixed income allocation. Parents ended up really gravitating towards the TIAA Traditional option, but I still had them get money in bonds as well. Bottom line is they want a guaranteed check coming in until they die, and since they aren't going to actively manage their portfolio, there is only so much I can do. They agreed to let me choose their stock options and I picked the S&P 500 Index Fund and the International Equities Index Fund, all with expense ratios below 0.1%. My hope is over the years as they adjust to even more conservative, I'll be able to get them to transition to more bonds over annuities.

Now, if I can just get them to sign up for some IRAs in the next month, then I'll consider this huge progress! I was also so proud of my mom the other day. She actually cancelled a service she doesn't need and is now saving $70 a month. I really have MMM to thank for these small changes in my parents, because it took them seeing me do some great things, financially, to see that there really is a different way to live!