Investing advice for my mom

[mozar]

Hello,
I've been turning this over in my mind for awhile and I would love some mustachian advice!


Thanks!

[soccerluvof4]

I think if you are really concerned with your moms welfare (which it sounds like you are just to be clear) before anything I would sit down with her and ask her some questions first perhaps about what she does have so your not making assumptions and also what her goals might be. She also might know more about the inheritance. I would start there before coming up with an allocation plan when you dont honestly know all the details.

[MustachianAccountant]

First, I would echo the poster above - you're making a lot of assumptions when you could just ask for the information. However...

Since she lives on so little now my hope is that with a 4% withdrawal rate she will be able to live off this inheritance for a number of years. So my question is what would be a very conservative portfolio that would be good for her? Municipal bonds?

The 4% withdrawal rule assumes a portfolio heavily weighted in stocks. Municipal bonds do not return a high enough percentage to apply the 4% rule. The jcollinsnh Stock Series should be a helpful starting point: http://jlcollinsnh.com/stock-series/
Also, the Investing forum here on MMM.

[Tyler]

I'm not a fan of muni bonds.  Too risky (cities going bankrupt is becoming a trend).  I also personally don't like heavy stock portfolios with the standard 4% rule for older retirees not already committed to riding out the rollercoaster long term.  A short-term drop will cause extreme stress.  Honestly, something simple but well-established like VWINX may work well in her situation, especially if you can encourage her to live off of only the income it throws off.  That won't replace her income completely, but will cover more than half and certainly help her out.

That said, your bigger issue is not how the money is invested but what she plans to do with it.

[mozar]

Yup, I don't know what she will do with it. I looked up VWINX and it looks like a good option. Thanks.

[Another Reader]

Does she have Social Security?  That will make a substantial difference for her.

No one is living on $200 a month after paying a mortgage.  Either your mom has other resources or she is building up debt.  The time to get her help is now, not when the inheritance comes (if it comes).  Sounds like your grandmother is more on top of the idea of saving and investing.  Any chance you and grandma could have a talk with your mom together?

[mozar]

I think

[the fixer]

VWINX is a good option to just sit there are earn dividends. Also look at Vanguard's managed payout funds. These take care of the drawdown from the portfolio for you, so the money will last a long time and you don't have to do anything.

[Another Reader]

Maybe the automated investments can just transfer to your mom.

In your shoes, I would want a good handle on this situation, especially if there is any inkling that your mom expects you to help her.  The last thing you want is for her to blow through that money and then show up on your doorstep.

[mozar]

That would be great if the automated investments can transfer but I know her brothers plan to liquidate everything.

[frugaldrummer]

Was your mother married for at least ten years? If so, she will be able to choose the spousal benefit on her ex's income if that is higher than her own ss.
And, although generally I think annuities are not a great idea, perhaps putting some of the money in an annuity would save it from her spending everything. Or perhaps she could pay off her mortgage with some of it?

[mozar]

She was married for at least ten years. What do you mean she can claim a spousal benefit on ss? Does her ex have to agree to this? I think paying off part of her mortgage is a good idea too.

[mozar]

I just looked up the divorced spouse benefit. Pretty neat tho it's still ten years from now.

[Cwadda]

Definitely read the link posted above: http://jlcollinsnh.com/stock-series/ and the relevant MMM articles. "How to invest in the stock market".

You can take advice from strangers on here who do care about your situation, but it won't get you very far if you don't take the time to learn why. Same goes for your mother. Understand the "why's" and you will be content and ready for action.

[frugaldrummer]

Yes, the divorced spouse benefit was designed to protect homemakers whose husband's bailed on them with their secretaries at 50 (although it benefits all  kinds of spouses, male and female).

It will only be 50% of her ex's benefit (same as if they were married) but does not affect his benefit in any way.  Also does not affect any other spouses he may have or may have had.

If her ex made a lot more in his life than she has, her spousal benefit may be more than she would get on her own.

Also, if he dies and she is over 60 (I believe) she can collect widow's benefits which are 70% I think.

In her age group, she cannot collect full SS benefits until age 66.  Do your best to convince her NOT to collect early benefits at 63 - they will be significantly reduced for the rest of her life. 

If she waits until she is older than 66, her benefits will go up by 8% for each year up to 70 that she delays collecting.

Is she disabled in some way that she can only work part time now?  What are her hopes for earning a better salary in the future?  Does she have any hobbies she can explore as side hustle sources of income?

[mozar]

I have read the investing articles from MMM and jlcollins.

[homeymomma]

That is so great! Good job for handling it so well, and good for your mom for being receptive. Good luck to her, my mom has a similar inheritance coming and will definitely be blowing through it! Lol