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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75523  
Subject: Investing for safety Date: 10/17/2011 11:25 AM
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I will briefly describe and x-post elsewhere for visibility/help.

My MIL, she is all invested in 2 star and 1 star funds with high fees/12-b-1, sales loads. he "investment advisor" really is not doing her a favor here for what he is getting paid ultimately to manage her portfolio. I would like to help, but I am unfamiliar with her stage of life, 65+ as I am still in the socking the money away phase.'

Bottom line:

1. I need to invest her money to ensure minimal risk of principal.

2. We are looking at like $65,000. This is it, all she has, only SS comes in monthly and a small pension.

3. She needs a $700 payout monthly, for expenses she has.

4. I am thinking an 80/20 split between Fixed income/equities.

5. How do I minimize tax implications? I will set up a new account, I believe it is an IRA (non-roth) at present, so would I keep it as a traditional IRA even though she is not putting any new monies in?

6. Any advice is appreciated. I am thinking Schwab to manage as that is who I use at present and they have a great selection/low fees.

Help!! ;-)
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Author: 0x6a74 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: 69669 of 75523
Subject: Re: Investing for safety Date: 10/17/2011 4:08 PM
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Bottom line:

1. I need to invest her money to ensure minimal risk of principal.

2. We are looking at like $65,000. This is it, all she has, only SS comes in monthly and a small pension.

3. She needs a $700 payout monthly, for expenses she has.


she needs 700/m from the 65K?
that's something like 13% annual ... pretty much impossible long-term.
(and depending how + she is from 65 .. her long-term could easily be 20 yrs.


4. I am thinking an 80/20 split between Fixed income/equities.

5. How do I minimize tax implications? I will set up a new account, I believe it is an IRA (non-roth) at present, so would I keep it as a traditional IRA even though she is not putting any new monies in?


iirc, the "rule o thumb" for her would say 65/35 .. but you (someone) has to decide how to balance risk/reward.

and ...but for making sure moving the IRA to another broker isn't taxable, taxes should be irrelevant (IMO)




6. Any advice is appreciated. I am thinking Schwab to manage as that is who I use at present and they have a great selection/low fees.


Schwab to *manage* or Schwab to hold the account?
i like them (use them) for the latter,
just don't know about the former

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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: 69670 of 75523
Subject: Re: Investing for safety Date: 10/17/2011 4:26 PM
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I need to invest her money to ensure minimal risk of principal.

Why are you the one managing her investments ?

She needs a $700 payout monthly, for expenses she has.

Since this is in addition to SS and pension, how did she end up in this situation ? Probably time to consider ways to reduce expenses.

What will you do if you lose money while managing her investments ?

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69673 of 75523
Subject: Re: Investing for safety Date: 10/17/2011 7:21 PM
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Okay, more clarification.

I know I will have to draw down principle, no way around it unless I get that 14%. As far as cutting expenses, she is bare bones, gets HEAP, etc. This is all the money she has, and she needs it to live on.

I will manage, Schwab will hold. I wish to invest conservative so that I don't risk losing too much principle.

How did she end up in this situation? Divorce and refusal to listen to anyone for years. That's the frustrating part. The money she has is from ex's 401k and inheritance. She owns the house she has, part of the settlement. She gets no alimony or anything. And HE was the one who wanted the divorce and had a girlfriend. IMHO,her lawyer did her wrong, but what is done is done.

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Author: GuildWarsQueen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69674 of 75523
Subject: Re: Investing for safety Date: 10/17/2011 8:04 PM
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How did she end up in this situation? Divorce and refusal to listen to anyone for years.

I'd be very wary of that (the refusal to listen to anyone) changing. Even if you come up with a really good plan, she may not follow it.

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69675 of 75523
Subject: Re: Investing for safety Date: 10/18/2011 10:15 AM
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I will be the one managing it, she will have no choice. She just goes the the advisor and gets confused. She is great at playing the "poor poor pitiful me" card.

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Author: GuildWarsQueen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69676 of 75523
Subject: Re: Investing for safety Date: 10/18/2011 10:36 AM
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I will be the one managing it, she will have no choice.

Have you had her declared incompetent? How are you going to force an adult to turn everything over to you?

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Author: StockGoddess Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69680 of 75523
Subject: Re: Investing for safety Date: 10/18/2011 2:56 PM
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If it's any consolation, my MIL is basically in this same boat. In her case we need to convince her to sell the house, it should give her an extra $200K to live on for awhile....and I guess we just need to plan on supporting her 15+ years out when that runs dry. Either that or she's seriously considered moving to Panama....a cheaper place to live.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69685 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 9:16 AM
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I know I will have to draw down principle, no way around it unless I get that 14%.

How long are you hoping for the $700/month money to last? Because the more principal you draw down, the higher the rate has to be to *not* draw down principal. If you truly want safety and are willing to draw down principal, the money will probably last around 8 years. Depending on how much longer you will want the money to last will dictate the risk you need to take.

There are preferred trust stocks and preferred stocks that are providing returns in the 7% - 9% range, but they are not 'safe'. www.quantumonline.com is a good starting point for research, and people on the Bond board here can also be helpful.

My current portfolio of these tyeps stocks provides me about $800/month on average, but has fluctuated in value between $115k and $128k over the last 3 months. If you are going to use something like this, I would suggest keeping $10k - $15k out of the market and in something truly 'safe' - like a 'high' (okay 1% or so) yield savings account, and investing the other $50k - $55k in the riskier assets, using the interest and dividends to replenish the 'safe' account, along with periodically selling some of the riskier assets. If you can get an 8% yield on $50k, you can get close to half of the $700/month to start with, and maybe make the money last 12 years or so. Beyond that, I hope she has a good 'plan B'.

AJ

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69686 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 10:37 AM
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Have you had her declared incompetent? How are you going to force an adult to turn everything over to you?


Force? She has asked me to do it as she "gets nerved up" when talking about it to others. She trusts me implicitly. So, no issue there.

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69687 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 10:38 AM
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If it's any consolation, my MIL is basically in this same boat. In her case we need to convince her to sell the house, it should give her an extra $200K to live on for awhile....and I guess we just need to plan on supporting her 15+ years out when that runs dry. Either that or she's seriously considered moving to Panama....a cheaper place to live.

Would a reverse mortgage help out in my case? How do those work?

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69688 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 10:40 AM
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I am not sure we can take that risk, this is all she has. There is no plan b. When the money is gone, it is gone. When I think about it I get real nervous as I know she is bound to come my way. Right now I have a one state buffer, not so much when the money runs out.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69689 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 11:20 AM
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I am not sure we can take that risk, this is all she has.

If you can't take risk, at $700 a month, the money will run out in about 8 years. It's a trade-off.

You can decrease the risk by keeping the $10k - $15k 'safe' buffer to use towards the monthly living expenses, so you can choose when you want to sell the assets, and hopefully, aren't forced to sell when the assets are down. That gives you a chance to increase the timeframe beyond 8 years. Yes, if you end up losing money and having to sell at a time when the assets are down in price, you will decrease the timeframe. But if you aren't willing to take risks, it won't be more than 8 years anyway.

So, what do you want? Safety, or more than 8 years?

There is no plan b. When the money is gone, it is gone. When I think about it I get real nervous as I know she is bound to come my way. Right now I have a one state buffer, not so much when the money runs out.

There apparently is a plan b. It's you.

AJ

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69690 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 11:40 AM
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Would a reverse mortgage help out in my case? How do those work?

If she has equity in a home and is 62 or older, a reverse mortgage can supply (at a potentially steep price) a way to use that equity, instead of selling the home.

The bank will lend her money based on her home's value. The fees will be based on the value of her home, not based on the amount that she borrows, so the fees will be higher than a regular (forward) mortgage, since she won't be allowed to borrow the entire valuation of the home. If she currently has a regular mortgage, that mortgage needs to be paid off with the proceeds from the reverse mortgage. Then with any additional borrowing power left, she can either get a lump sum, monthly payments (like an annuity) or use the loan like a HELOC, and borrow additional money when she chooses to.

She is required to pay taxes, homeowner's insurance and keep the home in good repair. If she doesn't, the lender may do so and charge her for doing so, or possibly, foreclose on her home.

The balance of the mortgage will grow each month - there will be a service fee charged, plus interest on the (growing) balance. The lump sum option is the only option that allows for a fixed rate reverse mortgage, so if she doesn't choose that option, she will get a variable rate reverse mortgage.

When she moves out of the home for more than 6 months, or dies, the mortgage needs to be repaid. If the home cannot be sold for more than the value of the mortgage, the bank eats the loss. If the house is sold for more than the balance owed the bank (borrowed amount, fees, interest, etc.) plus selling costs, she, or her heirs, will get the extra money.

We looked at a reverse mortgage for my mother, but she eventually decided to sell her house and move to a cheaper locale, in part because of how expensive a reverse mortgage would have been.

AARP has some good educational information on reverse mortgages. http://www.aarp.org/money/credit-loans-debt/reverse_mortgage...

If your MIL is interested in getting a reverse mortgage, she should probably get one sooner rather than later. Lenders are getting out of the business, so less competition is likely to make them more expensive in the future.

AJ

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69691 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 11:52 AM
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My BIL took out a reverse mortgage several years ago, at the urging of my SIL, and against my advice.

He took it as a "checkbook", and he wrote himself a monthly check. They kept calling me a worry-wart and the SIL as a financial wizard, since it worked out so well.
Except that a few months ago the line-of-credit ran dry, as he had written checks that totaled to the maximum amount of the RM.

Now he has *lost* that income that he was depending on, and is in a world of hurt. He can't even sell the house due to the crappy real-estate market.

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69692 of 75523
Subject: Re: Investing for safety Date: 10/19/2011 1:17 PM
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Yeah, I follow you all. Just asking.

Yeah, maybe some risk is in order to make the money last longer, need to consider...

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Author: numbrel Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69697 of 75523
Subject: Re: Investing for safety Date: 10/20/2011 9:07 AM
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Have you considered alternative housing solutions? If she is relying on HEAP, maybe she needs to consider an apartment with utilities included. Really, in this economic environment, I would not be relying on any government programs continuing.

Have you also looked into local social/charitable services that would help her with other expenses. Your local Agency for Aging or similar agency will help you find out what is available in her area.

Barbara

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Author: StockGoddess Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69699 of 75523
Subject: Re: Investing for safety Date: 10/20/2011 5:02 PM
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He took it as a "checkbook", and he wrote himself a monthly check. They kept calling me a worry-wart and the SIL as a financial wizard, since it worked out so well.
Except that a few months ago the line-of-credit ran dry, as he had written checks that totaled to the maximum amount of the RM.



TANSTAAFL.

(There Aint No Such Thing As A Free Lunch)

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Author: Ringfinger Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69702 of 75523
Subject: Re: Investing for safety Date: 10/21/2011 9:54 AM
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She is in contact with the local aged council. We will see what she can figure out.

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