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Author: hirundo Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Re: Question/Advice Date: 9/28/2008 4:25 AM
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My dad is getting on 70, and in his working days he participated in an employee stock program and over his 40+ years with the company accumulated a fair amount of company stock.

The program rule, however, is apparently at age 70.5 you have to either sell the stock or have it rolled over into an account/fund of your choice.


As worded above, it sounds like the stock would not need to be sold, if rolled over into "an account/fund of...choice". But I suspect the employer's actual requirement is that the stock must be sold -- and that your father must either receive the resulting cash directly, or have the proceeds rolled over into an account/fund. Clarifying the actual requirement would seem to be one of the first steps to be taken. This will be part of discussion with a tax adviser, which should be held right away.

My Dad sort of wants to take cash and use the money to buy more stock (in an electric company). It's down now, but he believes continued deregulation will boost stock price again in a few years.
My Mom (68) sort of wants to go to something less risky.

I think my parents are asking me because my dad had a severe stroke a few years ago and doesn't feel as comfortable with the decision as he would have used to. My Mom will outright admit she's not sure what to do.


You, and they, are fortunate they see that they should not undertake a decision like this without some additional input. My father suffered several small strokes, and thereafter lost his longtime habit of discussing all financial decisions with my mother before acting on them. Sadly, strokes can alter thinking and behavior in ways you would not expect if you had not been around someone before & after they had a stroke.

At some point your parents (or they and you together, if that seems best in your situation and you do not live too far away) should meet with a fee-for-time-only financial advisor.

But before a meeting of that kind -- I believe that if you flesh out your parents' situation with more details in a followup post here, you will get useful specific advice about points to discuss with the financial advisor. Although I rarely post to this board, I read it fairly often and have encountered several threads in which people presented their scenarios in some detail and got quite useful information and advice in response.

One key item: I imagine most regular readers of this board would not think it prudent for a retired person to commit more than perhaps 5 percent of their net worth to any single stock; exceeding this incurs single-stock risk, a common mistake.

Your post is silent about what what percentage this former employer's stock/proceeds might represent, of your parents' net worth but the fact that it is big enough for them to have called you, suggests that it might be a whole lot more than 5% of their net worth. If so, it will be prudent to use only a small part of the proceeds for any one particular stock (utility, or whatever), and to use the rest of the proceeds in some other way(s).

Pieces of the picture that would help guide responses and advice about best use of the proceeds from selling the former employer's stock:

Do they have a written budget?

Do their current sources of income meet or exceed current expenses?
If exceeding...by how much?

What future changes to these income sources, and to expenses, are already foreseeable?

Do they have any mortgage debt?

Do they have any debt apart from mortgage debt?

What is the current value of the employers' stock?

What is the current value of investments, if any, that they already hold? (bank accounts, CDs, stocks, bonds, mutual funds, etc.)

Do they have long term care insurance? This can be an important part of financial planning. It has buoyed many families through difficult periods of family members' lives. If in reasonably good health, your parents are still young enough to enroll in an LTC insurance plan.

You or they can flip through a few books at the local library or bookstore to find one or two that you like, to help you through the process of understanding how to use a financial advisor.

And yes, it makes excellent sense to plan to stow the money in CDs or the like (something insured by FDIC) while studying the situation and forming a plan for the future. This is one of the first suggestions in most books that advise on how to handle a substantial sum of money acquired 'all at once'.

hirundo
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