My parents literally "sold the farm" and now need to make some investments that will generate "income" for them. They are both 80 and have never had enough to invest before. They have about $150,000 to invest and will need to make between $12,000 and $15,000 a year to live comfortably. Any thoughts? What are the tax considerations? Help! Thanks.
If they were to set aside $12K for next years income in a money market fund and then put $12K in CDs maturing in 1 yr, 2 yrs, 3 yrs, and 4 yrs, that would leave them $90K for longer term. The $90K could be invested in stocks or indexed funds which should help extend their funds. Then each year $12K could be moved to another 4 yr CD.
While this plan would yield approx. $3,000/yr. at current CD rates, wouldn't it be necessary to invade the principal to make up the difference? Without doing so, the yield of the $90,000 balance in stocks probably would be far less than $3,000, excluding capital appreciation. Naturally, all would be subject to tax, so the amount available for living expenses would be less. At their age, a planned withdrawal of principal to make up the difference would seem prudent.
My thoughts were to fully use each of the CDs when they became due (or the full $12K) for the upcoming year. Obviously, I did not make that very clear. Then each year, convert another $12K into a 4 year CD. The money in stocks gives you a chance to earn more than the CD rate.
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