Author Topic: Advise for my newly widowed mother-in-law  (Read 755 times)

CptJack83

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Advise for my newly widowed mother-in-law
« on: February 24, 2023, 07:02:04 AM »
my father-in-law recently passed away.  He handled all financial aspects in their marriage.  I'm now working with my MIL on setting up budgets and managing her finances.

My FIL had a roll-over IRA that he invested with Northwester Mutual in an Annuity (!).  This has a balance of roughly $80,000 and they've been withdrawing $600/mn to cover living expenses over the past few years.  In addition he had a $200k life insurance policy.  This constitutes the majority of her investable assets.  The NWM rep has already reached out to her to set up an appointment so she can invest these funds...i've told her this is likely not her best option and have agreed to meet with her and he NWM rep in the coming weeks.

Outside of this nest egg she has ~$3,300/mn in income (SS & pension) with about $2700 in fixed expenses (the largest being her mortgage $1700).  She feels comfortable having roughly ~$1,500/mn in discretionary spending money.  So her nest egg would need to generate roughly $900 in income.

She is fairly risk adverse, but is also slightly worried about needing money for nursing care as she ages (75yrs old currently)

My current thoughts are to just put a majority in a money-market/CD with rates being 4.50%-5.25% this would generate the necessary income and preserve all her principal.  I'd probably recommend putting some in a target date (2025ish) vanguard fund so she would have some exposure to principal growth as well while generating some income.  Maybe $100k target date and $180 cash..

What advise would do you have for me?  Trying to educate myself as much as possible so that I can offer a counter argument to the NWM reps proposals.

**Regarding her mortgage.  She has roughly $100k in equity.  She does eventually want to sell the house and get a small condo.  This would probably cut her monthly payment to $800-$1,200/mn.  She would probably want to do this in the next 1-4 years.**

FLBiker

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Re: Advise for my newly widowed mother-in-law
« Reply #1 on: February 24, 2023, 07:34:50 AM »
It's hard to say what advice to give someone with a different risk profile, and also with a different level of comfort with DIYing personal finance.  My inlaws asked me for advice a few years ago on a proposal they'd gotten from a financial planner, but they absolutely didn't want to hear what I had to say.  The idea of managing their own investments via the Vanguard website (even with my help) was simply too daunting.

That being said, I don't think I'd keep $180K in cash.  If she needs $900/mn, I'd keep maybe 5 years worth in cash (i.e. $54000) and then invest the rest.  And in terms of making a counter argument to NWM, it's tough to say anything specific without seeing their proposal.  Philosophically, though, she already has a bunch of annuity type assets (Social Security, pension, annuity) so she may benefit from the added diversity of some non-annuity type investments.

And if / when she does downsize, I'd similarly invest most of that money as well -- keep how ever many years worth of supplemental cash makes her comfortable, and then invest the rest.  Again, though, my own orientation to this stuff is so different (very comfortable with risk and DIY) that it's hard to put myself in her shoes.

JimDogRock

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Re: Advise for my newly widowed mother-in-law
« Reply #2 on: February 24, 2023, 07:59:10 AM »
Honestly, it looks like she's in a fine position monetarily and does not need to feel rushed into any decision.
Since she is not as experienced with managing and thinking about the financial side you should focus on letting her take her time in understanding things and getting comfortable with the changes. She might even just not understand a thing once things like future growth and interest returns of different products/investments start getting mentioned.

There are a lot of variables to an elderly widow staying or not staying in the house that their partner died in. Let's leave that part alone for now and just talk numbers. What I mean is, let her adjust and don't push her in either direction. If her health and comfort level are good she can stay where she's at for decades.

With the current income of SS & pension minus the projected spending she has a monthly deficit of $900.
Let's round it to $1000. So annual expenses are $12000

$280,000 getting $12,000 taken out per year is a withdrawal rate of 4.29%. If she is all cash then that lasts her 23 years - 280 divided by 12

If the downsizing does happen this would lower the expenses and add to the invested assets.
If the result truly is $500 per month or more in lowered expenses you're looking at cutting the expenses in half.
How about a lowball estimate of adding $50,000 to the invested assets after all is said and done with the move?
That puts the assets at $330,000 and annual expenses at $6000.
If she sits on 100% cash that is 55 years of stable living - 330 divided by 6.
How about an unprecedentedly bad situation? If the markets go down between 3% and 7% every year like clockwork she'll get to zero assets somewhere  between 22 and 33 years in the future.

reeshau

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Re: Advise for my newly widowed mother-in-law
« Reply #3 on: February 24, 2023, 08:29:16 AM »
**Regarding her mortgage.  She has roughly $100k in equity.  She does eventually want to sell the house and get a small condo.  This would probably cut her monthly payment to $800-$1,200/mn.  She would probably want to do this in the next 1-4 years.**

You didn't ask about this specifically, but if she is looking to downsize, might she also switch to renting?  People have strong feelings about home ownership, but if she is looking for fixed costs, renting might be more predictable.  And she could free up the $100k to invest / protect against long-term care, vs. having to withdraw funds for a new roof or A/C unit, or having to hire trades to do the work.

FINate

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Re: Advise for my newly widowed mother-in-law
« Reply #4 on: February 24, 2023, 09:06:54 AM »
What are her goals? Maximize income? Maximize estate for her heirs? Stability/certainty? You shouldn't provide specific advice without understanding what she really wants.

You're thinking about this as someone who wants to maximize the investment, which makes sense here on a FIRE forum. But putting a big chunk in a Vanguard TDF may be a bad choice for her. Imagine you're 75 and just want to enjoy your remaining years in relative comfort, worrying about the ups and downs of a mutual fund is not a good fit, especially if you don't understand/trust the math for long term average returns.

At her age, putting $280k in a lifetime income annuity should yield around $2k/month, guaranteed, for life. That may be her best option if she doesn't want to worry about money and isn't concerned about leaving a large inheritance.  And this is where you, as a relative, need to be extra careful about your motivations if you get involved, because what's best for her may not be best for you.

bacchi

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Re: Advise for my newly widowed mother-in-law
« Reply #5 on: February 24, 2023, 09:53:30 AM »
I hate to agree but an annuity is probably the best plan. Money arrives each month and it's (on the surface) easy to understand. Do not buy an annuity from the NWM financial advisor salesperson.

She should probably have some in a money market for emergencies (roof, HVAC, etc.) or for a future care home deposit.


Eta: Delay the NWM meeting. Your MIL is grieving and probably feels a bit lost. They're experts in leveraging those feelings and will work to sell her an annuity or high load fund NOW! ("Just sign the paperwork and we'll take care of it.")
« Last Edit: February 24, 2023, 10:00:22 AM by bacchi »

Sandi_k

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Re: Advise for my newly widowed mother-in-law
« Reply #6 on: February 24, 2023, 10:03:09 AM »
The mortgage on a townhouse might be less than the house, but she'll have no control over special assessments and the HOA fees.

I would be very averse to a condo and the associated association. It would likely be more expensive on a monthly *and* a long term basis.