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Subject:  Late life retirement investing Date:  7/23/2010  3:15 PM
Author:  A2Ninja Number:  67357 of 88793

Hey Fools,

My father in law recently informed me that he'd like my help investing the money that he has amasssed for his retirement. I've got a strategy that I've come up with, but I was hoping to get some advice from those of you who are much wiser than myself.

First off, let me give you some information about my Father in law and his finances. He is a 60 year old diabetic who is otherwise fairly healthy. His monthly expenses are approximately $2,300 (inclusive of $700 for health insurance). He's self employed and in recent years has been making about $1,666 per month ($20,000 per year). So currently he is operating at a monthly deficit of $634 before taxes. He owns his car, is renting an apartment and has no debt worthy of mention. He is also single with no dependents.

Over the years he has accumulated $525,000 that he currently has in a very low yielding money market account at flagstar. Based on his social security statement, if he waits 6 years to retire when he is 66, he will receive $1,150 per month. Assuming his expenses do not change significantly after retirement, that leaves him with a net monthly deficit of $1,150. Based on his savings with a 0% growth rate, he could live for about 39 years after retirement, assuming no additional expenses arose that weren't covered by some other source (i.e. Medicare, medicaid, other insurance, etc).

According to some rough calculations I did, at a conservative 4% growth rate and using the 2006 life expectancy tables, he should be able to invest $300,000 today, fund his operating deficit till retirement, then live off of the investment and 4% earnings on the remaining corpus until he is 80(expected age) with almost $40,000 of a buffer.

I'm toying with the strategy of segregating his money into two pools, one for the minimum requirement to retire and the other for the excess. I'd use a very conservative investment strategy on the required amount (~$300,000) and something slightly more aggressive for the remaining $125,000. Now I'm open to any insight and input that you may have related to anything that I said, but I'm specifically looking for advice on the following:

1) I'm not sure what additional expenses I should budget for as my father in law ages. I know what his expenses are today, but I don't know if there is a financial planning standard that is used to budget for aging expenses.

2) How would you structure the very conservative investment and how would you structure the less conservative investment? Or would you take a different approach altogether. Feel free to get specific.

3) I would probably utilize a Roth IRA vehicle for a portion of the less conservative investment pool since he is in the 15% tax bracket right now, I expect tax rates to rise in the future, and contributions are limited so the tax free gains outweigh the tax deduction savings for his current tax bracket after about 4 years at a 4% rate.

4) Any other advice you have about how to structure this investment?

Thanks to everybody for their time, knowledge and input!
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