Author Topic: Advice for 63 yr old Dependent Mothers funds  (Read 2559 times)

Mothersdilemma

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Advice for 63 yr old Dependent Mothers funds
« on: May 06, 2019, 04:05:15 PM »
Hello Dear Members,

My mother is dependent on me (financially) for most things which thankfully I can take care of with a stable job as of now. She has some funds in IRA/401K etc which we need to rightly invest. I would like to help her invest/adjust so that it can give some good return and need to be there if needed in next 5 or so years. My mother and I would be grateful for your suggestions/advise or alternatives.

Mothers Background
Age: 63
Background: My mother lives with me so she does not have to worry about Rent, Utilities, food, medical insurance, clothes etc. Only things she spends on is medicines/copays....
Years until retirement: Already retired, no income
Taxes: None, income/gains are less than $1000 a year
Status: Single/Divorced
Estimated monthly Social security at 65: $200
Eligible for Medicare: at 65
Health: Fairly good health without any major issues
Emergency Funds: 40K in cash in CD at 2.2% at Capital one (maturity date June 2019)
Checking/Savings: 6K as buffer
No other Assets
Desired allocation: Since I am her backup and she most probably wonít be needing these investments in near 5 years plus, my inclination is to say a solid desired growth with relative stability. So 40/60 or 50/50 ? Curious to see fellow members analysis and preference


My Background
Since she is a dependent on me, it would help to give my background as well.
Age: 38
Years until retirement: 15-18 years
Current Federal Tax bracket: 24%
Filing status: Head of Household/Single
My current Asset allocation: 80% stocks / 20% bonds
Emergency Funds: 30K in cash (need to reduce this by investing, another topic for some day.
401K balance: 400K
Roth IRA balance: $80K
Taxable investments: 80K
Benefierary designated for my accounts : My mother

-----------------------------------------------------------------------------------------------
Present Portfolio below and questions at the end :
1) Traditional IRA 1 (Balance = 9K)
Currently itís at Citibank in useless funds with High ER, and we are in rollover process to Vanguard and proposal below as well.
80% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
20% Vanguard Total Bond Market                VBTLX   | ER: 0.05%
-----------------------------------------------------------------------------------------------
2) Traditional IRA 2  (Balance = 12K)
Currently in midst of rolling over from Citibankís IRA to Vanguard and proposal below as well.
80% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
20% Vanguard Total Bond Market                VBTLX   | ER: 0.05%
-----------------------------------------------------------------------------------------------
3) 401K (Balance = 20K)
Currently in midst of rolling over from Citibankís 401k to Vanguard and proposal below as well.
70% ($14295) Vanguard Total Stock Market     VTSAX     | ER: 0.04%
30% ($6216)   Vanguard Total Bond Market          VBTLX      | ER: 0.05%
(or)
100% Vanguard Life Strategy Moderate Growth    VSMGX | ER:0.13%
-------------------------------------------------------------------------------------------------
4) Extra Available funds to invest: $20K
Since she doesnít work/ no income I canít think of any Tax advantaged accounts to invest in. So, the choice is to invest in a Brokerage taxable account. We already are planning have $20 K in IRA to be invested in VTSAX. Should we opt to invest in any of these ones for little more diversification?
90% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
10%Total International Stock                                  VTIAX |ER: 0.11%
Total World Stock                                              VTWAX | ER: 0.10%
(or)
100%Vanguard Life Strategy Moderate Growth    VSMGX | ER:0.13%

******************************************************************************
Questions:


o   Case: As you can see, my mother is dependent on me for most things which thankfully I can take care of with a stable job as of now.

Portfolio - Historical Risk. Return:
Looking at the historical risk return analysis, seems like a Portfolio of 100%Stocks yields an average of 10.2% return vs 40%Stocks 60%bonds of 7.8% or even 50/50 which yields 8.3%. I am still unable to understand why would someone take that high risk if the reward is merely 2% more?

 Given risk tolerance is very personal, 100% or 90/10 makes sense for someone in their 20ís who wonít touch their money till 50ís but any other case 40/60 or 50/50 should be enough, right? Maybe I am missing something here where 40/60 or 50/50 will no longer yield those averages and one MUST increase their stock%? 

IRA (21K):
Total balance 21kÖI was thinking of putting it all 60% in VTSAX (Total stock market) and 40% in VTBLX (Total bond) or even 50/50 allocation. Should this approach 40/60 be good for our situation going forward even if we are in a bear market for 3-8 years?

Realizing I am her backup and she wonít be needing these funds letís say for another 5-7 years Ö. or would you be even more conservative 30/70 even though these funds wonít be needed till next 5-7 years at least? What allocation would you have picked given this situation?

How often would I have to rebalance for these funds for my mother if choosing (VTSAX/VTBLX) 60/40? Or would you even suggest going the route of picking a fund like Vanguard Life Strategy Moderate which is 60/40 and will do all these without manual intervention? Pros and cons?

401k (20K):
Total balance $20K, my proposal 50/50 or 40/60 in VTSAX and VBTLX good for this or is it better to put 100% in the life strategy fund which is I think 60/40 allocated and does not require rebalancing. Are there any 40/60 Vanguard funds which are very comparable to 40/60(VTSAX/VBTLX) type allocation but doesnít require rebalancing, this would make it simpler for mother if something happens to meÖ? Or rebalancing is ridiculously easy done once a year ?

Should we add VTIAX for some exposure to international. So, it would be 50/50 [40% US stocks & 10% International stock]?

Taxable Investment (20K)
Taxable investments are the best for the liquidity convenience. Having said that, is the proposal 100% in Life strategy VSMGX which is 60/40 wise? That would not require rebalancing and TLHÖOr the same combination of 40/60 VTSAX and VBTLX?  Since bonds are not preferred in taxable any other options combinations you would suggest.   I am looking for various suggestions and thought process on how you would invest if you were in similar situation.

Same thought of Ė maybe adding VTIAX for some exposure to international. So, it would be 50/50 [40% US stocks & 10% International stock]?

Would the Tax loss harvesting etc. donít mean much for her situation since she has no income and doesnít file taxes? Or if she has more than $3000 in gains will need to file a tax return? Please elaborate of it does.



Social security: Again, I understand this is personal depending on each case. However, if you were in my motherís situation, would you start collecting social security at 65 or wait till 67/70? She is healthy with no major issues as of now. Pros and cons?

Emergency funds (40K):
40k sitting in CD giving measly 2.3% will be matured next month. Would a better option be a HY savings like Ally which gives 2.2 and funds are readily available? or go for 2-year CD at 3%?

Or is betterment smart saver better than CD and high yield savings?

Is 40K too much sitting in CD or savings? Should we take perhaps 15K out and invest in taxable account picking 30/70 or even 20/80 of any of the above?  Or any other good options of funds you would suggest?

Checking and Savings account
Mother uses Chase account for maintaining 3-4K so she can pay her credit card bills. Is it better to open a money market account like VMMXX (prime market) to house this money so at least she gets 1%?  And she can pay her credit card bills from there and close chase? Trying to maximize every dollar she has..

If a money marker account is a good option to go withÖis    VUSXX (treasury) more safe and riskless compared to VMMXX ..in case of bear market?
   There was lot of tax effective yield mentioned on ratesÖWhich one is better for more return?

Taxes:
How would taxes play a role when she will be withdrawing money for social security and or RMD? How much taxes will she have to pay?

At 70.5 if she chooses to take her IRA withdrawal, how much will she be taxed? She still wonít have any income apart from gains and losses from investing in taxable account.
o   Would the Tax loss harvesting etc. donít mean much for her situation or?

Any other recommendations specific or overall?

Is my thinking approach headed in the right way? Perhaps I am missing some other concepts or scenarios I have considered. Please I welcome to suggest any other specific reading or topics.



Thanks and we are deeply grateful for any of your help, insights, suggestions and advice!

o   PS: Special thanks to this blog and the kind folks who take the time to reply, it really helps newbies like me to sharpen our thinking, analysis and utilize for self or help someone.




frugaldrummer

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #1 on: May 06, 2019, 08:15:23 PM »
She's healthy with no major medical problems, why then isn't she working? Her projected social security benefit is so low, that working a few more years might significantly bump up her benefit. You should look at how much her benefit might change if she worked (even part time) for 5 more years.


marty998

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #2 on: May 07, 2019, 06:14:00 AM »
Your mother should not have credit cards.

I'm confused... is your 401k balance $400k or $20k?


My Background
Since she is a dependent on me, it would help to give my background as well.
Age: 38
Years until retirement: 15-18 years
Current Federal Tax bracket: 24%
Filing status: Head of Household/Single
My current Asset allocation: 80% stocks / 20% bonds
Emergency Funds: 30K in cash (need to reduce this by investing, another topic for some day.
401K balance: 400K
Roth IRA balance: $80K
Taxable investments: 80K
Benefierary designated for my accounts : My mother

-----------------------------------------------------------------------------------------------
Present Portfolio below and questions at the end :
1) Traditional IRA 1 (Balance = 9K)
Currently itís at Citibank in useless funds with High ER, and we are in rollover process to Vanguard and proposal below as well.
80% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
20% Vanguard Total Bond Market                VBTLX   | ER: 0.05%
-----------------------------------------------------------------------------------------------
2) Traditional IRA 2  (Balance = 12K)
Currently in midst of rolling over from Citibankís IRA to Vanguard and proposal below as well.
80% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
20% Vanguard Total Bond Market                VBTLX   | ER: 0.05%
-----------------------------------------------------------------------------------------------
3) 401K (Balance = 20K)
Currently in midst of rolling over from Citibankís 401k to Vanguard and proposal below as well.
70% ($14295) Vanguard Total Stock Market     VTSAX     | ER: 0.04%
30% ($6216)   Vanguard Total Bond Market          VBTLX      | ER: 0.05%
(or)
100% Vanguard Life Strategy Moderate Growth    VSMGX | ER:0.13%
-------------------------------------------------------------------------------------------------
4) Extra Available funds to invest: $20K
Since she doesnít work/ no income I canít think of any Tax advantaged accounts to invest in. So, the choice is to invest in a Brokerage taxable account. We already are planning have $20 K in IRA to be invested in VTSAX. Should we opt to invest in any of these ones for little more diversification?
90% Vanguard Total Stock Market        VTSAX   | ER: 0.04%
10%Total International Stock                                  VTIAX |ER: 0.11%
Total World Stock                                              VTWAX | ER: 0.10%
(or)
100%Vanguard Life Strategy Moderate Growth    VSMGX | ER:0.13%


Laura33

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #3 on: May 07, 2019, 08:01:33 AM »
You are overthinking this and, I think, getting lost in the weeds.  You are doing the right thing rolling everything over to Vanguard.  How much of her funds do you think she might need within the next 5-10 years?  Put that amount in a CD or bonds.  Put the rest in VTSAX.  Re-evaluate and revise as your and her circumstances change.  That way you have the "possible short-term money" completely safe, and are getting better returns for the long-term money. 

You really don't need to worry about having multiple complex asset allocations in each of her separate accounts -- what matters is her overall allocation across all of the accounts together.  You should be able to combine all of the traditional IRAs and 401(k)s into a single account at Vanguard (the government views everything as one IRA anyway), so start thinking big-picture instead of getting lost in the complexities of individual accounts. 

SS: if she was married for at least 10 years, she would be entitled to her ex's SS.  But in any event, as long as you can support her, she should postpone claiming SS until 70, because at that minimal amount, the increase she'd get from waiting would be critical for the long-run in case at some point you are not able to support her any more.

Taxes:  you have time to research this.  Generally, taking money from IRAs and such is considered taxable income, and selling taxable accounts triggers capital gains -- but there is a $12K standard deduction that makes any income below that free from federal tax, and the CG rate is 0% for people in that tax bracket.  BUT I do not know how these rules apply if she is your dependent for tax purposes, so that is something to look into as she gets to the point of needing to withdraw money.

Stay away from Betterment.  There is no fundamental difference between the kinds of funds you are looking at, and anyone who tells you different is bullshitting you and you should run in the opposite direction on general principles.  So go with the lowest-fee option.

Finally, you are really underestimating the impact of a 2% difference in returns in the same way most people do, as a one-time thing vs. a difference that compounds dramatically over time (which is exactly why some funds can stay in business while still charging 1-2% in fees!).  The rule of 72 says that the rate of return of an investment times the time until the investment doubles equals 72.  So if you get a 10% return, your money will double in about 7 years, whereas if you get an 8% return, it will take 9 years to double.  And that happens every 7 or 9 years.  So assume you decide to invest $50K of her money, and she lives another 35 years or so.  If you get a 10% return, that will double every 7-ish years, so she will get 5 doublings in 35 years -- so in 7 years, she will have $100K, in 14, $200K, in 21, $400K, in 28, $800K, and in 35, $1.6M.  All from $50K!  OTOH, if you get an 8% return, it will take 9 years to get to that first $100K, 18 years to $200K, 27 years to $400K, and at the end of the 35 years, she won't even have $800K.  She will have less than half as much, all because of that "little" 2% difference.

Now obviously that is just an illustration, because she will be drawing on that money before then!  But that difference in returns illustrates why it is so important that for however long you can continue to support her, she needs to keep her own funds aggressively invested, because she is going to need to maximize the returns off of her relatively small investments if she is going to be able to support herself if and when you no longer can.

Cassie

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #4 on: May 07, 2019, 10:36:04 AM »
What if you decide to get married in the future? Why isnít she working?  Low income senior housing would work for her.

Sibley

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #5 on: May 07, 2019, 12:00:35 PM »
What if you decide to get married in the future? Why isnít she working?  Low income senior housing would work for her.

This ^

OP, why is your healthy, unemployed mother living with you and not paying her way? What is she spending her time on?

YK-Phil

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #6 on: May 07, 2019, 01:42:09 PM »
What if you decide to get married in the future? Why isnít she working?  Low income senior housing would work for her.

This ^

OP, why is your healthy, unemployed mother living with you and not paying her way? What is she spending her time on?

The OP must have his own reasons for supporting his mother. We don't know the circumstances but I am certain they are very valid from his vantage point. I am 61, fitter, healthier, and more active than when I was a young man. On the other hand, I know some folks in their late 50s and early 60s who for a reason or another, are not so lucky. If my mom or dad were like that, I'd not hesitate to support them. I commend the OP for what he is doing for his mom.

Sibley

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #7 on: May 08, 2019, 08:03:30 AM »
What if you decide to get married in the future? Why isnít she working?  Low income senior housing would work for her.

This ^

OP, why is your healthy, unemployed mother living with you and not paying her way? What is she spending her time on?

The OP must have his own reasons for supporting his mother. We don't know the circumstances but I am certain they are very valid from his vantage point. I am 61, fitter, healthier, and more active than when I was a young man. On the other hand, I know some folks in their late 50s and early 60s who for a reason or another, are not so lucky. If my mom or dad were like that, I'd not hesitate to support them. I commend the OP for what he is doing for his mom.

I have no issues with helping out a parent who legit needs help. I have serious issues with enabling an unhealthy relationship dynamic which is ultimately detrimental to one or both parties. We don't know which it is, but anytime someone who is presented as healthy and generally able is also presented as being supported - that's a red flag that it's the 2nd case.

Goldielocks

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Re: Advice for 63 yr old Dependent Mothers funds
« Reply #8 on: May 09, 2019, 11:35:51 AM »
The case as presented...
  Mother has $200/mo SS coming, $65 Medicaid
  $20k in emergency savings / cash
  $60k (approx) in retirement savings.
  All basics of living are paid for / guranteed.


I would have her claim SS now, and use it for monthly living and medical expenses.
  She should pay for her own entertainment / clothing / haircuts/ transit, etc out of this.
  I would have her pulling income (up to $150/mo) from the retirement funds.
  I would also have her contribute to food/ groceries/utilities at $150/mo. and paying you this token.  It is a sign of being an adult, and she is only 63... I would want my parents to feel like adults at that age.  You can revisit this amount in future, if her monthly medical costs increase.

There is no reason to stay conservative with the retirement accounts.  There is no risk if her retirement monies go away -- all the basics of life are already covered and there is a stash for extra medical costs in future ($20k worth).  If you ever need more than this, she may be likely to be a candidate for subsidized long term care.

Put it all (retirement accounts) into VOO or VTI.   
Keep the cash at 2.2% interest handy for emergencies.