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Author: stone9 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76112  
Subject: Grandmother's Retirement Money Date: 11/15/2006 1:04 PM
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Hi guys,

I need some advice on where my Grandmother should put her savings. She is currently not working (a.k.a. retired) and living in a retirement home. She has a sizeable amount of savings that had been in CDs (which are set to expire soon) and she is wondering where the money should go next.

I said since this is her life savings, she may want to consult a professional CFP, but it's unlikely she would do that. I told her there was no one I trust more than the Fool community for matters related to this.

Does anyone have any recommendations. Should she just put it back it CD's or maybe just cash right now (with today's rates).

Thanks in advance guys.

- Stone9
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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54403 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 1:12 PM
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How old is your grandmother ? What kind of retirement home and what is the payment situation there ?

rad

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54404 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 1:16 PM
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Today's rates are better than last year's rates.
Her expiring CDs were at what rate? She can probably get 5%+ today.
If she is old and her risk tolerance made CDs appropriate a year or so ago, they are probably also appropriate today.
Does the interest on her CDs meet her needs? If so, she is probably fine just where she is. A higher rate means more risk. She may not be comfortable with this, and if she is spending down no more than her probable life expectancy, no need to tamper with it.
Best wishes, Chris

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54406 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 3:34 PM
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The key is what income does she need to generate as a percentage of the total along with her age. IOW, if she needs $50k per year from $1M and she's 55 yo, CD's won't work.

OTOH, if she's 75 yo and needs $50k from $3M, CD's are just fine.

Also, I'd be inclined to ladder the CD's. If she's getting one lump sum out, she may want to put it in 1, 2, 3, 4 & 5 year CD's and roll them over each year into a 5 year CD.

-murray

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54407 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 3:41 PM
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Does the interest on her CDs meet her needs? If so, she is probably fine just where she is. A higher rate means more risk.

How is this? So long as we're talking about FDIC insured CDs, risk is hardly much of an issue.

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Author: stone9 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54409 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:13 PM
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She is 84 and in reasonable health. I think it's just a general retirement home. Not assisted living. Not sure how much she pays. Sure as heck ain't cheap I'm sure :)

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Author: stone9 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54410 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:15 PM
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She's 84 :)

Laddering huh? I'm pretty unfamiliar with CDs myself. I don't just want to send her blindly into a bank and have them sell her stuff that isn't in her best interest.

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Author: stone9 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54411 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:17 PM
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Why would a higher rate mean more risk? I thought CD's were nearly as risk free as Treasury Bonds.

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Author: alaskack Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54412 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:38 PM
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Why would a higher rate mean more risk? I thought CD's were nearly as risk free as Treasury Bonds.

I read the original comment as meaning that if she wanted a higher rate than what CDs, she'd have to invest in higher risk investments such as equities.



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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54413 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:41 PM
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Greetings,

The more risk part can exist because of things like brokered CDs, equity-index linked CDs and foreign bank, e.g. non-FDIC and non-dollar denominated, CDs.

In the case of a brokered CD it may lose some principal due to interest rate fluctuations which can be quite similar to Treasury Bonds where you have say a 20 year CD or Treasury which had what you thought was a high rate but in fact turns out to not be so high as rates continue to rise so that if you have to sell the CD or Treasury early you may lose some principal value.

For more on Brokered CDs take a look at http://www.sec.gov/investor/pubs/certific.htm which is from a government site.

Regards,
JB

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54414 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 7:44 PM
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CDs are safe. Your original question sounded like you were considering alternatives like putting her into the stock market, which if you do a good job of stock picking (or she does) can increase the rate of return, but also introduce the possibility of losing a chunk of her savings. Not good for an 84 year old lady in a fairly nice, quite expensive retirement home.
Best wishes, Chris

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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54417 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/15/2006 11:00 PM
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My mother is 93, and from a family whose siblings tend to reach 100 or more. I use Vanguard funds for her diversified portfolio comprised as follows:
30% Total Stock Market
20% Total International
15% REIT Index
15% Total Bond Fund
15% Inflation-Protected Securities
5% Prime Money Market

Dividends combined with a pension and social security provide income more than adequate for her needs. The fixed income portion of her allocation covers about 10 years of her draw, which I think is more appropriate than an age-adjusted allocation. I suspect she has at least a 7 to 10 year time horizon, so inflation remains a primary risk.

She bought a one bedroom apartment in a deluxe retirement resort in Santa Barbara, and lives in independent status. She prefers to cook most of her own meals, except she eats lunch in one of the dining rooms several times a week for social reasons. The complex proivdes services ranging from independent living to full time nursing and alzheimer care. We visit her a couple time a week and take her shopping etc. at least once a week.

I am the beneficiary of the trust which will eventually become a charitable trust.

db

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Author: stone9 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54421 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 10:37 AM
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Wow, great information guys!

db,

You'll have to tell me what your grandmother's secret is being so independent at 93! That's wonderful :)


So I'm thinking a mix of CD's/Inflation protected bonds/and cash in prime money market accounts.

I'm not sure she's willing to take the risk of the overall stock market, even for a small percentage of the account. Maybe I could convince her of an extremely conservative index fund.

You guys think this sounds reasonable?

- Stone9

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54423 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 12:44 PM
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One of his grandmother's secrets is an excellent choice of parents.

If your grandmother has enough to support herself nicely for the rest of her life, leave well enough alone. If you are an eventual heir, then when it is your asset, if you want to be less conservative that is a different matter.
Your grandmother won't thank you if you talk her into a conservative index fund and then the market takes a dive. It looks like she's doing well as it is.
Best wshes, Chris

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54424 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 12:47 PM
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I hate to even open this can of worms(an accurate description), but an annuity might be worthwhile looking into. Try to make sure that she knows why most annuities sold by banks and insurance company are a very bad deal for her because of the outrageously high costs and commissions, and poor performance. Ask questions if you need to know more about why some of them are so bad. If she needs more income and an annuity is appropriate, then try to help her find a good one from someplace like Vanguard or Fidelity. Even with these, it would it take lots of research. People sometime think of annuities as being an all or none choice. It could be that putting 25%(or whatever) of her assets in an inflation-adjusted annuity would be enough to cover her basic needs if she lives to be 105 along with social security.

There are also mutual funds that are directed towards retirement income like Vanguard Target Retirement Income Fund (VTINX)

She stands a pretty good chance of living into her late 90's so she should still take inflation and making her money last into account. For a very rough idea of her life expectancy see;

http://www.ssa.gov/OACT/STATS/table4c6.html

She needs to understand that insured CD's and Government bonds may be safe from default, but that there is still a risk of inflation that could happen in the next fifteen years. Ask her is she remembers her parents or older relatives being hit by inflation in the late 1970's and early 1980's.

Greg


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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54425 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 1:02 PM
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Maybe I could convince her of an extremely conservative index fund.

Conservative index funds do not exist. In fact, index funds are generally more volatile than a balanced fund or one with a substantial bond holdings.

Just to disagree with the crowd, Grandmom should meet with a fee-only CFP. www.GarrettPlanningNetwork.com www.NAPFA.org

There is a lot more to financial planning than investments. It is especially more critical if you are elderly.

buzman

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54428 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 1:12 PM
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There is a lot more to financial planning than investments.

Just wanted to repeat that.

Too often someone asks "Grandma just died. How do we.....?"

IF

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54429 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 1:17 PM
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>> Just wanted to repeat that.

Too often someone asks "Grandma just died. How do we.....?"
<<

True. My dad passed away almost a year ago, and he basically had everything in order. He left detailed instructions about where all the investments were, who to contact and what had to be done in terms of changing ownership details.

They had a trust and he left all the details of how we were to change owners and beneficiaries of his IRAs.

Shortly before he became incapacitated he sold all of his taxable stock investments, recorded the total capital gain and loss and put it both into a binder of their finances and in Quicken, so we had all the entries we had to make for the tax return I prepared for her this year.

As a result it was easy for my mother and her kids to make a few phone calls, fill out a few forms and get everything done. I know no one likes to think about this while they and/or their loved ones are still alive, but it is very important and gives that much less to stress about at a very sad and stressful time.

#29

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54430 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 1:22 PM
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Sorry for your loss, 29.

Most people will benefit from professional advice...lemme rephrase that competent professional advice. Not everyone plans as well as your dad-he must have been quite a guy.



buzman

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54431 of 76112
Subject: Re: Grandmother's Retirement Money Date: 11/16/2006 1:27 PM
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>> Most people will benefit from professional advice...lemme rephrase that competent professional advice. Not everyone plans as well as your dad-he must have been quite a guy. <<

True. My point wasn't so much that everyone should go out and do this for themselves -- by all means, if they have the knowledge and the desire they should even though a quick review from a professional would still be a good idea -- but that somehow, someway, get this all done so it's MUCH easier to deal with when the time comes. It's a hard enough time for family as it is without the added hassles and stress of not knowing what to do with the decedent's estate.

#29

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