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Hello!

So I read the 13 Steps, Fool's Guide to Investing, Dow Dividend Approach, and I'm ready! The problem is that it's not my money... I'm helping a 59 year old unemployed ex-homemaker plan HER retirement, so the fear factor is crippling me.

Here's the scenario: after selling her house, paying off her debts, and purchasing an inexpensive new residence, she will have about $65-70,000. She does not have any income, and her SS benefits will be in the lowest bracket if she collects at 62, and not much higher if she waits until 65. (The only decision I have been able to make so far is to completely disregard the SS money, and be happy when she has some "extra" income coming in)

I am encouraging her to try to work for at least 1-3 years in an attempt to allow her money to grow a bit, but I'm not sure how feasable that will be.

So the question is, given that her "plan" was to spend the money as needed and then go on SSI (whoa!), do I just encourage her to invest (Foolish Four, small-cap growth? or WHAT!) and hope that things continue on the upswing, with the worst case scenario being that she ends up on SSI earlier than she expected? I have considered just doing the S&P 500 Index Fund, but I'm afraid it won't generate enough to give her an income and increase her principal; her living expenses, with no frills and no emergencies will be about 10K/year.

In the meantime, just after I found this website, she and I went to see a "financial planner" HA! He wants to see some (how predictable) diversification - from CD's to mutual funds to small-cap growth, but still anticipates only about 10.25% return! So now I have to talk her out of that...

I'm also wondering, since she has no interest in managing her own money, what are some ways I could help her without taking away her control? Any reading recommendations?

I'd love to see her become financially independant; any guidance you can offer is greatly appreciated.

JS
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<So I read the 13 Steps, Fool's Guide to Investing, Dow Dividend Approach, and I'm ready! The problem is that it's not my money... I'm helping a 59 year old unemployed ex-homemaker plan HER retirement, so the fear factor is crippling me.>

Well it should... . I am 59, have essentially no debts, a pension that pays about $16000/year after income taxes,
but before about $3200/year property tax. Fortunately I saved up all my life and have about 10x the amount the ex-homemaker has, so I can afford to worry less. I can also collect social security sometime.

<Here's the scenario: after selling her house, paying off her debts, and purchasing an inexpensive new residence, she will have about $65-70,000. She does not have any income, and her SS benefits will be in the lowest bracket if she collects at 62, and not much higher if she waits until 65. (The only decision I have been able to make so far is to completely disregard the SS money, and be happy when she has some 'extra' income coming in)>

My Quicken calculator says if she puts in $65k @ 21%, retires now with $5000/year social security, experiences 4% inflation, and is in the 15% tax bracket, and promises to die at age 100, she will get about $12,778/year after taxes in today's dollars. That would probably pinch. Also, while the Foolish Four may attain 21% annually, I would not want to make any short-term bets on it.

<I am encouraging her to try to work for at least 1-3 years in an attempt to allow her money to grow a bit, but I'm not sure how feasable that will be.>

Repeating those calculations, assuming 3 years more work, investing $1000/year, gives $17655/year, which might be
better.

<So the question is, given that her 'plan' was to spend the money as needed and then go on SSI (whoa!), do I just encourage her to invest (Foolish Four, small-cap growth? or WHAT!) and hope that things continue on the upswing, with the worst case scenario being that she ends up on SSI earlier than she expected? I have considered just doing the S&P 500 Index Fund, but I'm afraid it won't generate enough to give her an income and increase her principal; her living expenses, with no frills and no emergencies will be about 10K/year.>

If the index fund does 10.5% a year, she will get $8545 and $9495, respectively, for the two cases above, if I calculated correctly.

<In the meantime, just after I found this website, she and I went to see a 'financial planner' HA! He wants to see some (how predictable) diversification - from CD's to mutual funds to small-cap growth, but still anticipates only about 10.25% return! So now I have to talk her out of that...>

I am SO glad I am not a financial advisor to anyone but myself. She will have to balance a low-risk investment that looks sure to be insufficient vs. a high risk one that could well be better, but might be worse. How would you feel if, following your advice, she lost most of her capital? How would she feel? Betrayed?

<I'm also wondering, since she has no interest in managing her own money, what are some ways I could help her without taking away her control? Any reading recommendations?

I'd love to see her become financially independant; any guidance you can offer is greatly appreciated.>

You better not take away her control. You might end up with a serious legal liability if you end up in the role of a financial advisor, practicing without the required licenses.
I am really glad my mother does not want my advice.
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Greetings, JS, and welcome to Fooldom.

<< I'm also wondering, since she has no interest in managing her own money, what are some ways I could help her without taking away her control? Any reading recommendations?>>

JeanDavid gave you a good response, so I won't add anything to that except to say you need to recognize it is her money, her risk tolerance, and her decision. As much as you may want to convince her otherwise, she's the one who must take the necessary action. Changing the behavior of others when they are averse to doing so is a nearly impossible task, as any parent will confirm. She can read the same materials you did and still continue on as she has in the past. Or maybe not. But that's beyond your control, and thinking otherwise will be an enormous frustration to you.

Regards……..Pixy
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Finally, a victim---er,uh, I mean "customer". (He said, rubbing his hands in glee!)

Read my recent 4-part posting on "Drawdown". Invest her money in a UV2 strategy, and draw no more than 10% a year, and she will probably never run out of money. Drawing $10K from a $70K portfolio is 14%, so there is a possibility that she might go broke. If you want me to run detailed numbers for you, email me, and I will. I'd suggest staggered UV2 portfolio, spaced 3 or 4 or 6 months apart. Each portfolio would have a holding period of 12 or 18 months. As each one comes due, withdraw the proportional amount of living expenses between then and the next portfolio's turn. Example: if you have six portfolios spaced 3 months apart, with an 18 month holding period, then every three months you'd update one of them, withdraw 3 months of living expenses and invest the remainder of the money into the current UV2 stocks.

She might be best off in taking SS as soon as possible, especially if doing so will reduce her draw to below 10%.

If she doesn't want to take control over her own money, she'd better develop a taste for Alpo. You are not likely to find a financial planner who will stick to a UV2 approach for her. ("High returns for the client, low commissions for me? NAH!")

Good luck,

Ray

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I fully agree with JeanDavid and Pixy. Recently, my Mom (three states away) ran across the MFIG and started reading it, and called me to ask if I had every heard of it. We discussed some of here investments---she's 72, and her broker had her investing in options(!). I offered to her to invest some of her money using the same strategies that I use for my kid's trust funds (UV2/UV4+) and our IRA accounts (mostly UG5). Her choice, her decision, her money--all I'll do is place the same buy/sell orders for her account as I already do for my accounts. No real extra work for me, I'm already doing the selections for us, and placing one more set of orders is no big deal

JeanDavid: From my admittedly limited amount of looking at drawdown for retirement living expenses, it seems that you should limit your percentage of drawdown to half of the average growth rate of the investment strategy. More than that, for all the strategies which I looked at (S&P500, MF4, UV2, UV4+) and you run the distinct chance of running out of money. Less than that, and they all continued to grow over the long term.

This means that you should take no more than 5% annually from a S&P500 index fund, and no more than 10% annually from a UV2 account. about. your mileage may vary. lord willing and the creek don't rise. downhill with a stiff tailwind. don't try this at home. profession drivers on a closed course.
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<JeanDavid: From my admittedly limited amount of looking at drawdown for retirement living expenses, it seems that you should limit your percentage of drawdown to half of the average growth rate of the investment strategy. More than that, for all the strategies which I looked at (S&P500, MF4, UV2, UV4+) and you run the distinct chance of running out of money. Less than that, and they all continued to grow over the long term.>

My calculations were strictly those of the Quicken retirement calculator, which looks more reasonable than many I have found on the Internet. For the numbers I put in, you are *guaranteed to run out of money* at age 100. I said she had to promise to die at that age. This is one of the risks one takes. For someone with only $65k to invest and hoping to take out, say $10k/year (I would HATE to try to live on that, with my property tax over $3000/year), this lady cannot possibly afford to live on her capital and have it last in perpetuity. Note that I was assuming a 21% return (doubling the Dow) which may be OK over the years, but risky as a short-term thing.

Sure shows the benefits of starting early.
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Yo, JeanDavid.

<<My calculations were strictly those of the Quicken retirement calculator, which looks more reasonable than many I have found on the Internet. For the numbers I put in, you are *guaranteed to run out of money* at age 100. I said she had to promise to die at that age. This is one of the risks one takes.>>

It's an excellent approach for those to whom leaving an estate to heirs is secondary. It's also my preferred planning tool provided one takes a conservative outlook by using a longer than average life span. In that regard, 100 is a good, sound age.

Regards......Pixy
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