Invest advice

[geenamercile]

Hello,

So my aunt wanted some input on what to do with 200K.  Right now she is looking at doing 100K in CDs for 5 years, and the other 100K she is looking at for around a 10 year investment.  She has 130K she is keeping out now for a what ever fund.  This is pretty much what is left of my uncles life insurance policy that she received.  She did talk to an advisor (he is with the company who holds the pension and the money market account because of this she said his fee would be less than 1% of the return) and goes back next week.  There is a money market   He suggested for the second 100K a 70/30 split between the stock market and bonds.  After living expensive/bills and S.S and the pension she is about 700 a month extra, so her savings may grow as well.  House is fully paid off.  Worth about 400K??  She is a home body, doesn't really want to travel besides to visit my cousin in Ireland at some point, and Alaska which is the only place on her bucket list.  They have done all the repairs on the house over the past few years, roof, new heater/ac unit, new appliances, ect...  According to her right now her goal is to try and leave as much as possible as an inheritance to us    She is a very risk intolerant person, and that much in the stock market is making her jittery.  She thinks she has 10-15 years left, she does have a heat condition that she will be getting surgery for.  I told her I would ask you all.         

I will try and answer any questions, or get the answers from her that will help.  

[tskeeter]

A thought.

As interest rates go up, an investment in a bond mutual fund or ETF is pretty much guaranteed to lose money.  And, it looks like the fed is going to be raising interest rates for the foreseeable future.  While 70/30 is a “stock” allocation for an aggressive investor, it doesn’t seem that your aunt would qualify as an aggressive investor.  I don’t think that I’d be working with the advisor your aunt has talked with.  He has proposed a cookie cutter solution that appears to be inconsistent with your aunt’s risk tolerance.  

[dannylion]

I don't think I'm qualified to give investment advice, so I won't make any specific recommendations.  If your aunt is risk-averse, the current state of the market would probably make her reluctant to put large amounts in equities right now, so she might want to interview other qualified advisors to see if someone else might offer her a plan that would make her more comfortable.  Since she currently has "enough" and some left over for savings, it is not unreasonable to consider suggesting more risk than she might be comfortable with, but it's her money and she needs to feel comfortable with the plan. 

I would recommend that she clarify with the advisor she is currently working with (and any others she might consult) that his fee is a percentage of the return rather than a percentage of the assets being managed.  Every financial advisor I have ever had charged fees as a percentage of assets under management, not just on the returns.  

[CCL]

How old is she? How long has she been widowed? Is she looking for more income? I'm thinking no since you said she has extra each month.

Since she's risk averse, I agree with the others, the current advisor may not be the best fit for her.

If she's wanting a 70/30 split, she can open an account with Fidelity and put it in FBALX. It pays quarterly dividends/capital gains which help cushion the ups and downs of the market. Fidelity also offers CDs and bonds. She doesn't necessarily need an advisor. You can probably do just as much for her without paying his commission.

[justme]

I don't think I'd put a huge chunk in a long term CD right now. It looks like it's only 1.5% yet it seems interest rates will be going up soon. I think I'd put it in government bonds that at least change the rate over a cd. I'd either do a 1 year cd or keep it in a high yield savings in the hopes of cd rates getting up to higher rates. Or at least hold some of it.

[geenamercile]

Apr 25, 2022 12:49:53 GMT -5 CCL said:

How old is she? How long has she been widowed? Is she looking for more income? I'm thinking no since you said she has extra each month.

Since she's risk averse, I agree with the others, the current advisor may not be the best fit for her.

If she's wanting a 70/30 split, she can open an account with Fidelity and put it in FBALX. It pays quarterly dividends/capital gains which help cushion the ups and downs of the market. Fidelity also offers CDs and bonds. She doesn't necessarily need an advisor. You can probably do just as much for her without paying his commission.

She will be 65 in July.  She isn't getting her social security right now just the pension and using money from her checking account.  There is a decent sum in there as well that should easily last until she starts getting her SS, but moving that around isn't under consideration.  She is paying 1200 a month right now for health insurance, but that will drop with medicare kicks in.  My uncle passed away in October.  Right now she says she just wants to leave us the largest inheritance she can, while also enjoying her life.  Her enjoyment is going out to eat once in awhile, knitting, and her gardens/yards.

  

[stillmovingforward]

Good hobbies. She sounds delightful.

[NastyWoman]

Apr 25, 2022 14:11:33 GMT -5 geenamercile said:

Apr 25, 2022 12:49:53 GMT -5 CCL said:

How old is she? How long has she been widowed? Is she looking for more income? I'm thinking no since you said she has extra each month.

Since she's risk averse, I agree with the others, the current advisor may not be the best fit for her.

If she's wanting a 70/30 split, she can open an account with Fidelity and put it in FBALX. It pays quarterly dividends/capital gains which help cushion the ups and downs of the market. Fidelity also offers CDs and bonds. She doesn't necessarily need an advisor. You can probably do just as much for her without paying his commission.

She will be 65 in July.  She isn't getting her social security right now just the pension and using money from her checking account.  There is a decent sum in there as Swell that should easily last until she starts getting her SS, but moving that around isn't under consideration.  She is paying 1200 a month right now for health insurance, but that will drop with medicare kicks in.  My uncle passed away in October.  Right now she says she just wants to leave us the largest inheritance she can, while also enjoying her life.  Her enjoyment is going out to eat once in awhile, knitting, and her gardens/yards.

  

Iam not really up on tne SS rules but wouldn't she be eligible for survivor benefits? Maybe she can get those and let her own SS grow until she is 70?

[tallguy]

Apr 26, 2022 2:44:34 GMT -5 NastyWoman said:

Apr 25, 2022 14:11:33 GMT -5 geenamercile said:

She will be 65 in July.  She isn't getting her social security right now just the pension and using money from her checking account.  There is a decent sum in there as Swell that should easily last until she starts getting her SS, but moving that around isn't under consideration.  She is paying 1200 a month right now for health insurance, but that will drop with medicare kicks in.  My uncle passed away in October.  Right now she says she just wants to leave us the largest inheritance she can, while also enjoying her life.  Her enjoyment is going out to eat once in awhile, knitting, and her gardens/yards.

  

Iam not really up on tne SS rules but wouldn't she be eligible for survivor benefits? Maybe she can get those and let her own SS grow until she is 70?

Survivor's benefits are independent of retirement benefits.  She could either file on her own record now and let the survivor's benefits max out when she hits FRA before switching, or file for survivor's benefits now and let her own continue to grow until she hits 70.  My recollection is that she could also file for six months retroactive benefits if she claims her own, but cannot apply for retroactive benefits on the deceased spouse' record.  The general advice is to allow the larger benefit to max out while claiming the smaller benefit first, but that is not necessarily the best strategy in all situations.

[Deleted]

I agree on two of the points already raised. Check how the advisor will be compensated (if it's 1% of assets under management that's a big chunk off of current bond returns), and have her look into SS. If your Uncle was collecting she should at least get that. In my case, I was on Survivor benefits for 5 years and just switched to my own.

I like the idea of FBALX or even a mutual fund that starts with an age-appropriate mix of securities and goes more towards bonds as you age. They're similar to target0date retirement funds except they're for people already retired. She can choose whatever mix that she wants going in regardless of her age. I had a retirement-date fund with a "retirement date" later than my planned date because I wanted a more aggressive mix. They do have the disadvantage of higher fees since some are "funds of funds".

Do you think she should downsize? Not knowing where she lives, a $400K house could be a "starter home" or a McMansion. If the latter, moving will be expensive up-front (been there, done that) but will reduce costs down the road. Even though hers is paid for, there's still insurance, maintenance, property taxes, etc.

[geenamercile]

Her house is set up for her to die in.  She just built a covered deck on it, they redid both bathrooms on the ground floor, the one on on the master was redone so if needed a wheel chair can go in it.  Her kitchen is done just the way she wants it upstairs.  The bottom floor is set up like a 1 bedroom MIL suite with a small second kitchen, bathroom, and a very large great room.  Right now that is set up for her sewing/crafting. 


She is currently collecting on her S.S, and I believe is planning to switch to the survivor benefits at the full retirement, I don't think she wants to wait until she is 70 for that.  Her benefit is only like 300 some a month, but my uncles benefit was 3K a month.  Right now with the pension and her SS, her checking account is dropping a few hundred a month.  But once medicare kicks in and she can drop the private health insurance she will most likely be holding steady, I think.  Right now I am more listening and offering ideas when I can.  There is nothing wrong with her brain, just that investing and all of that is new to her.  This was always more my uncle thing.           

[geenamercile]

I am also sending all the advice to her as messages, so she can read over it and have it when she meets with the guy again.  

[jerseygirl]

In addition to Medicare it’s good to have a medigap policy. Probably a G policy. Medicare alone can leave a sometimes fairly large amount needed to pay. Plus a medigap policy decreases the need to keep dealing with and paying all the many bills coming in. It may be worth it just for the decrease in stress keeping track of medical bills. We have an F policy but these aren’t accepting new accounts. F pays even the Medicare deductible, G doesn’t cover Medicare deductible

Cost is maybe $3500/year for a medigap policy

[geenamercile]

Yea, I am waiting till work is closer to done before trying to figure out all the Medicare plans ect... I need to build my base knowledge before being able to help her navigate that.  

[dannylion]

Apr 26, 2022 9:51:19 GMT -5 geenamercile said:

Yea, I am waiting till work is closer to done before trying to figure out all the Medicare plans ect... I need to build my base knowledge before being able to help her navigate that.  

There should be a SHIP representative somewhere in your community who can provide assistance with navigating Medicare decisions and selections.  They are usually found in senior centers, sometimes libraries.  They are volunteers, it is free to consult them, and they do not sell anything or push any particular product; they just provide information and explanations.  

[Deleted]

Be VERY careful about Medicare Advantage. It gets sold aggressively. BF works for a SHIP line but he can't tell people which to buy. Based on the conversations he's had with callers who have Advantage plans he wishes he could. The plan gets $X,000 per insured from Medicare and has to work within that, so they make money by being cheap. Networks can be restrictive. It looks cheaper up front (some charge no additional premium and even rebate your Part B premium) but you may be sorry later. Another big drawback: if you decide to go back to traditional Medicare after a trial period, the supplement company can subject you to "underwriting" and turn you down or charge more if you're unhealthy.

[CCL]

If she can get $3k per month vs $300, I would switch to the survivor benefit now. That's a big difference and would take quite a while to break even. Is there a reason why she wants to wait?

[tallguy]

Apr 26, 2022 16:40:12 GMT -5 CCL said:

If she can get $3k per month vs $300, I would switch to the survivor benefit now. That's a big difference and would take quite a while to break even. Is there a reason why she wants to wait?

A quick guess without looking anything up would be that she would receive 93-94% of the FRA survivor benefit if she were to take it now.  Waiting until she actually hits FRA in two years or so would mean an extra couple hundred dollars per month for life if the $3000 is accurate.

[geenamercile]

Apr 26, 2022 16:54:57 GMT -5 tallguy said:

Apr 26, 2022 16:40:12 GMT -5 CCL said:

If she can get $3k per month vs $300, I would switch to the survivor benefit now. That's a big difference and would take quite a while to break even. Is there a reason why she wants to wait?

A quick guess without looking anything up would be that she would receive 93-94% of the FRA survivor benefit if she were to take it now.  Waiting until she actually hits FRA in two years or so would mean an extra couple hundred dollars per month for life if the $3000 is accurate.

Yea this was it.  If she waits she gets a high amount later, it was a few hundred if I remember it right.  We wrote it all down, which she has.  I had to convince her to go ahead an collect now on her own record, vs just waiting to do the survive benefits later and living off of savings when she reaches FRA.   

[CCL]

If she's currently getting $300 per month that's $2520 per month less than the $2820 (94% of $3000). Times 24 months = $60,480 she's giving up by waiting. Divided by $300 extra = 201 months to break even.

For myself, I'd take the survivor benefit in a heartbeat. Then spend the money on splurges and living better now. If I wanted to leave an inheritance, I'd start spending some of it on those people now and enjoy it with them.