Author Topic: Recently Retired Father Needs Investment Help  (Read 504 times)

actonyourown

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Recently Retired Father Needs Investment Help
« on: August 06, 2019, 09:17:22 AM »
My dad recently retired and is asking me for some help to earn money on his payout. I gave him some ideas but I would like to see what the community thinks.

60 yo
Pension income: ~$65k
Mother earns 43k but is going to retire in 2-3 years with only 10k in retirement assets currently, so she is dependent on his income.
Investable assets: ~$300k currently in a stable value fund earning 2% interest.
I will note that he wants some of this money for his toy purchases (boat, RV, jet ski, sports car made it there) so not all of it is available for investments nor is it all needed for retirement due to his pension, however, he doesn't get life adjustment increases to the pension.

He said he is comfortable putting 100k in the market and he won't need it for 10 years. I suggested a "bucket" style structure or even just buying into a 2020 target date fund. He is super conservative and is worried about losing his retirement assets (pulled out money from his 401k like option to stable value fund before October dip validating his assumptions, then I told him how great the run has been since December). I'm willing to do the work for him on it but I dont want the blame if markets drop and he pulls it out either. I can be clear with him on that.

He asked also if he should consider a financial advisor, to which I said it was fine as long as he goes to a fee-only fiduciary advisor.

Any thoughts are appreciated.

Mrs.MLM

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Re: Recently Retired Father Needs Investment Help
« Reply #1 on: August 06, 2019, 09:28:09 AM »
How much of the pension will your mother receive if your father passes away?

actonyourown

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Re: Recently Retired Father Needs Investment Help
« Reply #2 on: August 06, 2019, 09:31:37 AM »
How much of the pension will your mother receive if your father passes away?
He actually took a reduced payout to ensure she gets 90-100% when he dies. I think it is 100 but I'm going off of memory.

civil4life

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Re: Recently Retired Father Needs Investment Help
« Reply #3 on: August 06, 2019, 01:35:43 PM »
If he is only willing to put $100k towards investment he could dump it all in index stocks.  It is only a third of his portfolio.  The other 2/3rds is in very conservative savings accounts.  With a ten year outlook on need any crash would have recovered in that time period. 

I doubt you would convince him of that.  I think it will be more what level of risk he is willing to tolerate.

frugaldrummer

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Re: Recently Retired Father Needs Investment Help
« Reply #4 on: August 06, 2019, 05:01:42 PM »
If there's no cost of living increases with his pension that buying power is going to decrease pretty rapidly. Do either of them qualify for social security? Is their home paid off?

You can run some quick and easy calculations on the Ultimate Retirement Calculator at Financial Mentor (no, not as detailed as Firecalc but super easy to run several scenarios through).  I use it to look at various retirement scenarios for myself. I will have three sources - a pension without cost of living increases, social security, and a 401k.  It's always surprising how quickly that pension becomes worth so much less.

I just ran a quick calculation for him, desiring an annual spendable income of $55,000 after 15% taxes (WAG) and a life expectancy of 90 with 3% inflation and 6% investment growth. It shows he would have about $70k to play with for his "toys". That's certainly not going to buy all the things on his list. If we go with a more conservative investment strategy (which seems to be his tendency) and say he's only going to average 4% on his investments (half at 2% and half at 6%) then he actually comes up short $70k.

Running a few scenarios like these for him may help him be a bit more realistic about how much money there is for toys.

actonyourown

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Re: Recently Retired Father Needs Investment Help
« Reply #5 on: August 06, 2019, 10:30:46 PM »
If he is only willing to put $100k towards investment he could dump it all in index stocks.  It is only a third of his portfolio.  The other 2/3rds is in very conservative savings accounts.  With a ten year outlook on need any crash would have recovered in that time period. 

I doubt you would convince him of that.  I think it will be more what level of risk he is willing to tolerate.

This is definitely a possibility.  I would really like to have him invest 200k.  I would guide him to VTI, VXUS, BND, BNDX (probably equivalents at Vanguard).  Modeling the returns without considering inflation, I can show him expected returns based on different allocations as he sees fit.

If there's no cost of living increases with his pension that buying power is going to decrease pretty rapidly. Do either of them qualify for social security? Is their home paid off?

You can run some quick and easy calculations on the Ultimate Retirement Calculator at Financial Mentor (no, not as detailed as Firecalc but super easy to run several scenarios through).  I use it to look at various retirement scenarios for myself. I will have three sources - a pension without cost of living increases, social security, and a 401k.  It's always surprising how quickly that pension becomes worth so much less.

I just ran a quick calculation for him, desiring an annual spendable income of $55,000 after 15% taxes (WAG) and a life expectancy of 90 with 3% inflation and 6% investment growth. It shows he would have about $70k to play with for his "toys". That's certainly not going to buy all the things on his list. If we go with a more conservative investment strategy (which seems to be his tendency) and say he's only going to average 4% on his investments (half at 2% and half at 6%) then he actually comes up short $70k.

Running a few scenarios like these for him may help him be a bit more realistic about how much money there is for toys.

Neither qualify for social security yet as he is 60 and she is 55.  I would encourage them to hold off claiming his as long as possible because it will be additional income later to make up the difference in buying power, but they could claim hers when they are able to approximately 4 years after she retires.  Their home is not paid off but the rate is really low and he is just paying the minimum.  I foresee some lean years ahead in the near-term based on my math, however, they are not big spenders, so long-term I'm not worried about them.  My dad wants a boat I know (not sure where the jet ski idea came from, what 60 yr old wants a jet ski?) and maybe one other thing but I would tell him to rent an RV before purchasing one and anything like that.  He is a big outdoorsman and has been fishing twice a week on the creek while he fixes things up around the house with his new found time.  He wants my mom to retire soon while they both are healthy and can travel.  They live a LCOL area, however, you have to drive everywhere including work, so he is probably already spending less on things already.  He will definitely not spend the whole $65,000 every year long-term.

I appreciate the responses!