Author Topic: Investing IN retirement questions  (Read 3061 times)

Daisyedwards800

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Investing IN retirement questions
« on: June 21, 2016, 09:51:58 AM »
My mother was left some money and now has a house worth about $650,000 with $80,000 left on her mortgage.  She will now have about $525,000 in cash, which is made up of $140,000 in her 401k invested in funds and the rest in cash.  She has paid off all other debt, doesn't even have a credit card.  She is turning 69 this year and is still working at a job making $72,000 a year. 

Right now she receives $2300 a month in Social Security which comes out to about $1800 a month after taxes (since she earns income the SS is taxed).

She wants to retire very soon (once the estate is settled).

My question is, how do you go about investing when you are retired?  She has enough but if the market crashes she will have half and worries about that.
Would it make sense to only invest part of it in index funds or use bonds or what have you? 

It would be great to hear some options.

Mother Fussbudget

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Re: Investing IN retirement questions
« Reply #1 on: June 21, 2016, 02:49:10 PM »
Many financial advisors recommend investing in bonds to a larger percent of the total portfolio in retirement. 

One rule of thumb is:
   Portfolio Bond Percentage = retiree's age.

In your mother's case, she could invest in 69% bonds in something like VTBLX (Vanguard Total Bond fund Admiral Shares), and the rest across whatever she is comfortable with.  For me, this would be 15% VTSAX, 10% REIT's, and 4% cash.  (and pay off the mortgage)

nereo

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Re: Investing IN retirement questions
« Reply #2 on: June 21, 2016, 04:00:45 PM »
There's a lot more information necessary to making this decision than you provided here.  Two key pieces are your mother's tolerance for risk, how much money she needs for monthly expenses and whether she has any long or short-term plans for that money (e.g. philanthropy, a world cruise, etc).  Her health and any medical conditions also influence the decision.

There's teh old, conservative addage "your age in bonds" that Mother Fussbudget suggested, or a more modern take "Half your age +7 in bonds" which in your mother's case would be 41.5% in bonds.  Then there's simply establishing a bond-ladder of several years expenses (5 years is a popular choice) and investing the remaining in equities. 

Each of these 'rules of thumb' will fit only a select percentage of people.

She's collecting $2300/mo from SS - how much more does she need each month? 

Daisyedwards800

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Re: Investing IN retirement questions
« Reply #3 on: June 21, 2016, 04:12:00 PM »
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

nereo

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Re: Investing IN retirement questions
« Reply #4 on: June 21, 2016, 05:03:47 PM »
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

Ok - that's one piece.  In addition to her SS you estimate she needs another ~$1300/mo ($15,600/yr).  Does that include her mortgage (i.e. will that go down further once the mortgage is gone?)
What is her tolerance for risk?  Will she get anxious everytime the market dips?  Or is she more steady?

Honestly, with $525,000 in cash and at age 69 she can choose to be very conservative (protecting principle) and have a large percentage of bonds, or if she wants to 'leave a legacy' to her children or some other charity she could certainly put a lot more in equities (like a low-cost index fund) and still never worry about running out of money.  Currently she's at a 2.9% WR

For example, if she put 20% in bonds (fairly aggressive) she'd still have 6 years, 8 months of living expenses in 'low-risk' assets
Or: she could put 60% into bonds (protect principle) and she'd have a full 20 years living expenses in bonds.

have you talked to her and gotten a feel about what she wants?  For some people their biggest worry is protecting what they have and not running out of money.  For others it's leaving something to their heirs or their community.

MDM

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Re: Investing IN retirement questions
« Reply #5 on: June 21, 2016, 09:41:48 PM »
1) Has she asked for your help? 
2) She should take a close look at her retirement budget.  $3800/mo (ignoring travel) is a lot for a single person with a paid mortgage.  See How To: Write a "Case Study" Topic for some thoughts on collecting that information, whether it gets posted here or used privately.
3) She should get most of that money out of cash.  The "4% Safe Withdrawal Ratio" assumes investments in stocks and bonds, not cash.

Daisyedwards800

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Re: Investing IN retirement questions
« Reply #6 on: June 24, 2016, 06:50:13 PM »
Yes she asked for my help.  Is that enough to retire on?

She wants to stay in her house.
Expenses:
Property Taxes - $8500
Homeowners/car insurance - $6000 a year
Food - $2500-3000 a year
Health care - $1200 a year (probably goes up as she gets older)
Gas/Heat - $2000-3000 a year (oil heat, northeast winters)
House maintenance - a 70 year old lady not doing much DIY for big stuff but she is handy and her boyfriend is pretty DIY - $2500-6000 a year worst case (she already has a new roof, new boiler, new water pipes, new washer-dryer etc.)

Give or take - $25000 a year.

Her SS amounts to $27,500 a year.

So she has $437,000 to invest in order to protect principle, travel and enjoy retirement. 

MDM

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Re: Investing IN retirement questions
« Reply #7 on: June 24, 2016, 07:56:10 PM »
Property Taxes - $8500   High, but probably not avoidable without moving.  Is her appraised value ok?
Homeowners/car insurance - $6000 a year   What???  I might expect $600....
Food - $2500-3000 a year   Reasonable
Health care - $1200 a year (probably goes up as she gets older)   Is that the Medicare Part B premium?  Prescriptions?  Other medical?
Gas/Heat - $2000-3000 a year (oil heat, northeast winters)  Reasonable
House maintenance - a 70 year old lady not doing much DIY for big stuff but she is handy and her boyfriend is pretty DIY - $2500-6000 a year worst case (she already has a new roof, new boiler, new water pipes, new washer-dryer etc.)  Given all that, house maintenance probably won't be that high but there are other expenses (clothes, entertainment, travel, etc.) so call it good.

Quote
Give or take - $25000 a year.
Her SS amounts to $27,500 a year.
And SS is (more or less) indexed to inflation so she is ~fully covered for now.

Quote
So she has $437,000 to invest in order to protect principle, travel and enjoy retirement.
Appears she is in good shape!  Something like Vanguard LifeStrategy Conservative Growth Fund might be appropriate.

Good luck!

Catbert

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Re: Investing IN retirement questions
« Reply #8 on: June 25, 2016, 11:26:52 AM »
I'm *guessing* that your mother has a low risk tolerance or is at least a nervous investor. For that reason, I would definitely pay the house off.  Then I would separate out what she likely needs/wants from the portfolio in the next 5-10 years.*  That could be cold, hard cash or CDs or investment grade bonds or other safe cash generating vehicles.  This is what she should focus her attention on when the stock market gets screwy (like this week).  he returns will be crappy, but hit should help her sleep at night.

Put the remainder in a broadly based mutual fund(s) like total stock market.  She should avoid looks at the balance more frequently that quarterly.

*For me that meant laddering out zero coupon muni bonds.  However, I started 10 years before I retired so I was buying bonds with a 10+ year time horizen.  Not to mention that rates were higher 20 years ago.   

frugaldrummer

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Re: Investing IN retirement questions
« Reply #9 on: June 26, 2016, 03:58:45 PM »
Quote
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

I'm confused about this part - if she was making 72k per year at her job AND collecting social security AND had a tiny mortgage - why was she struggling???  Sounds like more than enough.  You may need to take a close look at her expenditures to see just why she was "struggling".

Also - make sure she actually wants to travel.  Some just haven't had the opportunity (like my mom, who still works at 84 and has used her work income to fund trips to London (twice), Paris, Rome, Ireland, New York, and now Canada in the last 15 years - she takes me and my sister along and we travel frugally).

But if your mom hasn't traveled despite her more-than-adequate income, perhaps she just hasn't made it a priority.  Perhaps she prefers to spend to much on clothes or some such.  Not a value judgment - just saying her priorities may not be the same as yours.

rafiki

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Re: Investing IN retirement questions
« Reply #10 on: June 27, 2016, 06:39:47 AM »
Quote
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

I'm confused about this part - if she was making 72k per year at her job AND collecting social security AND had a tiny mortgage - why was she struggling???  Sounds like more than enough.  You may need to take a close look at her expenditures to see just why she was "struggling".

Also - make sure she actually wants to travel.  Some just haven't had the opportunity (like my mom, who still works at 84 and has used her work income to fund trips to London (twice), Paris, Rome, Ireland, New York, and now Canada in the last 15 years - she takes me and my sister along and we travel frugally).

But if your mom hasn't traveled despite her more-than-adequate income, perhaps she just hasn't made it a priority.  Perhaps she prefers to spend to much on clothes or some such.  Not a value judgment - just saying her priorities may not be the same as yours.

I totally agree with this.

Also, to play devil's advocate, that house represents a huge portion of her net worth and is likely a lot of work / substantial burden to maintain. It's easy to justify in a single sentence "Oh, she wants to stay in the house", but it's a big piece of this and begs scrutiny.

I think she needs to look long and hard at the numbers and her priorities, take a long look at her historical budget to see where her money has gone in the past, etc. On one hand I see this inheritance being a great windfall to her, on the other hand, if mismanaged it could go quick. Maybe it's time to sell and move to somewhere cheaper and invest the difference. It just depends on what her priorities are.
 

Daisyedwards800

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Re: Investing IN retirement questions
« Reply #11 on: June 27, 2016, 08:47:20 AM »
Quote
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

I'm confused about this part - if she was making 72k per year at her job AND collecting social security AND had a tiny mortgage - why was she struggling???  Sounds like more than enough.  You may need to take a close look at her expenditures to see just why she was "struggling".

Also - make sure she actually wants to travel.  Some just haven't had the opportunity (like my mom, who still works at 84 and has used her work income to fund trips to London (twice), Paris, Rome, Ireland, New York, and now Canada in the last 15 years - she takes me and my sister along and we travel frugally).

But if your mom hasn't traveled despite her more-than-adequate income, perhaps she just hasn't made it a priority.  Perhaps she prefers to spend to much on clothes or some such.  Not a value judgment - just saying her priorities may not be the same as yours.

She was making $28,000 a year when my father died.  She just started collecting his Social Security this year at age 67-68.  She didn't have a tiny  mortgage, her mortgage was $200k at the time.  She also had to get a new roof and things for the house.  I was 13, my brother was 14, so she had expenses for us, and we had college (which we took loans for but still impacted her debt because she cosigned for us, although we have made all the payments ourselves since).  She had JUST started working again after being a SAHM when he got sick.  She had medical bills from his cancer treatments as well.  She just got out of debt in 2012-2013 from all that.

Daisyedwards800

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Re: Investing IN retirement questions
« Reply #12 on: June 27, 2016, 08:48:05 AM »
She has been struggling for years.  In 2013 she got promoted and her income went up steadily from 28,000 to the 72,000 it is now (very recently).

Daisyedwards800

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Re: Investing IN retirement questions
« Reply #13 on: June 27, 2016, 08:49:33 AM »
Quote
Well, she has been struggling along since my father died, so I think having a little extra would be nice.  Maybe $3800 a month total plus a little traveling (she has barely been anywhere at all).

I'm confused about this part - if she was making 72k per year at her job AND collecting social security AND had a tiny mortgage - why was she struggling???  Sounds like more than enough.  You may need to take a close look at her expenditures to see just why she was "struggling".

Also - make sure she actually wants to travel.  Some just haven't had the opportunity (like my mom, who still works at 84 and has used her work income to fund trips to London (twice), Paris, Rome, Ireland, New York, and now Canada in the last 15 years - she takes me and my sister along and we travel frugally).

But if your mom hasn't traveled despite her more-than-adequate income, perhaps she just hasn't made it a priority.  Perhaps she prefers to spend to much on clothes or some such.  Not a value judgment - just saying her priorities may not be the same as yours.

I totally agree with this.

$72k is since 2015 I believe.
« Last Edit: June 27, 2016, 08:52:11 AM by Daisyedwards800 »