Author Topic: Help for my Parents  (Read 2777 times)


  • 5 O'Clock Shadow
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Help for my Parents
« on: March 11, 2017, 09:01:20 AM »
Greetings Mustachians,

I am seeking advice for my parents on how to allocate my Dad's savings in his retirement. He has a meeting on Tuesday with a financial advisor from Lockwood Advisors about using his T-IRA to set up some annuities for him. I am highly skeptical, and he's asked for my advice.

To me, their future income looks pretty solid. They are on the risk-averse side of the spectrum. Maybe turning that T-IRA into annuities is a decent idea for them? The expense ratios on the funds he currently holds with Lockwood are rather bad. I'd advise him to go through Vanguard annuities if he decides to use an annuity.

My main question for this community is: In light of their case study, would you advise an annuity for that T-IRA? If not, what would you recommend?

Bonus Question: My dad's dream is to flip homes. He'd like to set up a cash account with about $60k in it to use for that purpose. Is there any way to extract some money from these funds for that purpose without paying a penalty?

And, I don't consider myself very knowledgeable on the topic of personal finance in general, although I am learning. Is there any advice you would have for them at this point in their journey?

Thanks very, very much.

Their Situation:

Dad: 61, retired, self-employed-remodeling homes
Mom: 58, teacher. retiring in 2020.

Current Income Total: approx $5,700/mo
Dad: +/- $1000/mo. as self-employed handyman
Dad Pension: $1200/mo.
Mom Salary: $3500/mo.

Income at 2020 Total: approx $7k/mo
Dad Handyman: +/- 500/mo.
Dad Pension: $1200/mo.
Dad SS: $1800/mo.
Mom Pension: $2000/mo.
Mom SS: $1600/mo.

Assets Total: $298k
T-IRA with Lockwood Advisors, $298k allocated as follows:
1% cash
64% mutual funds
invesco development markets fund class y @ 1.17%
aqr large cap momentum style fund @ .4%
aqr international equity fund class 1 @  .91%
blackrock strategic income opportunity @  1.15%
dodge and kox income fund @ .43%
gateway fund class y @ .70%
oakmark international fund @ 1%
ridgeworth seix floating rate high income fund class @ 1 .62%
rivernorth doubleline strategic income fund class 1 @  1.79%
suave fundamental us large company index fund @ .35%
tcw emerging markets income fdcl 1 @  .87%
35% exchange traded products
ishares tr tips bd etf @ .20%
ishares tr barclays 20+year treasury bd etf @ .15%
vanguard specialized portfolios dividend appreciation index fd etf @ .19%
vanguard bd index fd incorporated total bd market etf @ .06%

Debts Total: $1662/mo
Home Equity Loan $120k @ $1000/mo
Car Loan #1: $442/mo with 18 months left
Car Loan #2: $220/mo with 18 months left


  • Pencil Stache
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Re: Help for my Parents
« Reply #1 on: March 11, 2017, 09:29:43 AM »
Here's the basic problem with annuities.

You're spending money to buy a promise (not even a certainty) that payouts roll in. No matter what you do, an annuity is a worse choice than doing things yourself, for the same reason a financial advisor is a worse choice than doing things yourself. He probably pads his own pocket, and you forgo even MORE gains because of trying to buy certainty from a business.

A fiduciary is a financial advisor legally obligated to make good decisions with your money. If your dad's financial advisor does not respond to the question "are you a fiduciary?" with a calm "yes" and a willingness to prove it, your dad is just signing up to getting hosed with a new brand of investment from the same company already hosing him.

Those funds are absolutely atrocious. Your dad is getting tied to a chair and robbed by this company and he's asking them what other robbery experiences they have to offer. He should absolutely get out of this immediately. He even has cash allocation in there (he's giving them an interest-free loan on top of his outrageous fees).

Read up in the investment forum. The easiest portfolio rollover looks like this:

1) Open an account at Vanguard (> $10,000 gets Admiral shares) and rollover everything into it.
2) Buy VTSAX
3) Make a lot more money over time and pay almost nothing in fees.

If you or he can't be bothered to learn more than that, at least do that.

For your other question:
« Last Edit: March 11, 2017, 09:50:40 AM by Hargrove »


  • Magnum Stache
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Re: Help for my Parents
« Reply #2 on: March 11, 2017, 10:11:57 AM »
Your father has far too many funds for someone with that amount of savings, and the expense ratios are atrocious.  And now his "advisor" has decided that those expenses are insufficient and so your dad should move into annuities, so he (the advisor) can get, what, 7.5% up front?  This is legalized highway robbery.

(Aside:  I bet anything the advisor has selected so many funds as a way to persuade your dad that he *needs* the advisor to do it for him, because, wow, this investing thing is just *so* complicated, and you need this complex asset allocation and someone who is always watching the market so he can adjust that in response to market shifts to keep your dad safe, yadda yadda yadda.  This is such fear-mongering bullshit that it makes me want to fly through the computer screen and throttle him.)

By way of contrast -- a/k/a out in the real world -- your dad would do just fine with a portfolio of two index funds (stocks/bonds) and cash equivalents (CDs/money markets).  If that is too much, he could choose one of many target retirement date/lifecycle funds.  Added bonus:  your dad has sufficient money that if he were in Vanguard, he'd qualify for Admiral shares (lower expense ratios).  And he wouldn't even need to go it alone -- I believe the major brokerages like Vanguard are beginning to offer some planning assistance (free) to folks above a certain investment threshold, as are other companies (I get solicitations from T. Rowe Price all the time, and I don't even have that much invested with them).  I get that your dad likes the comfort of not going it alone, but wanting someone to hold his hand doesn't mean he is stuck with this rip-off.

Your first and only immediate goal is to get your father divorced from this advisor.  I can't tell you whether an annuity would have a reasonable role to play in the portfolio of a conservative investor like your father.  But I sure as hell wouldn't trust an answer from someone who has already demonstrated that lining his own pockets is more important than looking out for your dad's best interest.  Can you set your father up with a fee-only planner to talk through his finances and goals and set up a better plan to cover his needs -- even if you need to pay for the visit yourself?  Who knows, maybe an annuity is a reasonable choice for your dad -- maybe it's worth it to him to give up the gains and pay the higher fees to ensure stress-free income.  But I would want to hear that from someone who doesn't have such a vested interest in the outcome.

Re: the $60K for flipping, your dad is over 60, he can take whatever he wants from his tIRA.  Just remember that those distributions count as income in the year he takes them, so (a) he will need to take out more than $60k to end up with $60k in his pocket, and (b) he will want to pay attention to tax brackets when planning those withdrawals -- i.e., he may want to split his withdrawals over a few years to keep their total income within a lower tax bracket.  Again, this is something that a decent advisor should be able to help him structure.  Whether he *should* do that depends on whether he needs that $ to live off of; they seem to have good pensions and SS, etc., but without knowing their expenses, we can't really say.  Again:  this is the kind of thing an independent, fee-only advisor does.


  • Pencil Stache
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Re: Help for my Parents
« Reply #3 on: March 11, 2017, 06:59:16 PM »
I am pretty sure my wife and I are in your dad's and mom's HS graduation year(s) and agree 100% with Laura33.  If you dad is including you as a "trusted advisor" I agree he is at an expensive, "no turning back" fork in the financial road working with his current advisor who your dad may consider a friend or at least an expert.  I've had a few, but broke up with them a few years back to reorganize using VG and Boglehead strategies.

Here is the simplest way to locate a "fee only planer" in your area.
 I would consider asking your dad to accompany you to interview a couple/3 to see if he "sparks" with one of them.  I found mine on my first interview and he confided in me that his first engagement usually saves his client more than his fee simply by pointing advising them to replace the FA with a VG or Fidelity account.  I will pay $150 per hour anyday/allday to have a trusted advisor on call only when I need or desire to talk to him.  Now when I call to ask a question, he offers up his "no invoice" short answer gratis or he says he"may need an hour and a half" if I'd like a deeper dive...

« Last Edit: March 11, 2017, 07:06:10 PM by Capsu78 »


  • 5 O'Clock Shadow
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Re: Help for my Parents
« Reply #4 on: March 12, 2017, 12:36:58 PM »
Thanks very much for this. I'm working on setting up an appointment with a fee-only advisor, and asking him to cancel the appointment with the representative that wants to shuffle him into annuities.


  • Senior Mustachian
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Re: Help for my Parents
« Reply #5 on: March 12, 2017, 01:38:49 PM »
...using his T-IRA to set up some annuities for him. I am highly skeptical, and he's asked for my advice.
Probably just piling on here, but in case there is any doubt: you are right to be skeptical, I hope your dad takes your (and other posters') advice, and he stays far, far away from any annuity sales person.

If, in ~10 years or so, he and you want to do your own research and choose a Single Premium Immediate Annuity, that might be appropriate.

Annuity sales people will stress the "but you can't lose money" with their product.  And yes, it's true that in a year in which the market drops the annuity account balance will not drop.  But in the years in which the market goes up, the annuity balance will increase only a small fraction of the market increase.

The net effect favors the insurance company providing the annuity so much that they can afford to pay hefty commissions to the sales agent.  Thus the old joke about the person complaining to the sales agent about the underperformance of the annuity purchased years ago, and the sales agent responding, "but I made money, and the insurance company made money, and 2 out of 3 is pretty good, right?"