hello,i am far, far from retiring age but need to educate myself for someone elses behalf.my dad was let go about a year ago, he's 63. he's also from a foreign country and lives there still.he had lived like a king on $3k a month. he has lived most of his life spending his paycheck. but he's also bought real estate and put stuff away in his savings.in short, he has no income anymore. but has about $200k as well as properties. more than enough i would think to live out his final years in comfort.instead since he has no income, hes decided to let his saved money generate income. and in the process hes lost about 1/2. he had over $500k a year and a half ago.he's a bit older and knows nothing about investing. neither do i but at this rate, in another year he'll be in the poor house. something must be done.he stuck his money in a bank which promised 24% return. i thought this was a big promise. the bank went under and he lost a bunch.now he has his stuff in a bank in the cayman islands where his money is playin the nyse. he won't give details as it is his business, he says. i smell a problem tho.i am educating myself so i can approach him with a coherent plan, where he can maybe place his money in a low risk account where he can withdraw a modest sum for living expenses. that way he wont end up poor and actually enjoying his life rather than getting ulcers from seeing his hard earned balance dwindle.where can I start my education? any tips of which direction i should investigate?i'm a fast learner and need to fast trak this.thanks,cv
Welcome CervantesVive! You have come to the right place. The Motley Fool is an excellent resource - a good place to learn about personal finance and investing basics.It is recommended that most people start with the "13 Steps to Investing Foolishly" Go to:http://www.fool.com/school/13steps/13steps.htm?ref=SchAgGood luck to you!
I'm not familiar with foreign markets or their tax laws, but I think I can help you think through the situation in a fashion where you can arrive at some logical conclusions.Let's start with looking at the challenge from a different perspective. Keep in mind we are first trying to establish goals, then a strategy that supports the goals and finally, tactics to implement the strategy. Even when people understand these three steps they frequently start at the wrong end of the equation. By this I mean that too many people concentrate on capital resources rather than cash flow. The two are obviously connected, but are best considered as unique events.As a person prepares to retire their prime consideration is capital. However, beyond establishing a target for their estate, cash flow is a more realistic point at which to start a designing a goal. Once you determine the desired cash flow per year, the number of years it will be required, index it for inflation and cash flow provided by sources other than investments (capital), you can calculate the capital needed to support the cash flow. The first issue is to determine the required minimum monthly cash flow. I also like to establish a secondary cash flow target you could term as "desired cash flow." The key is to design an allocation that does not risk placing the person to where a loss would jeopardize the minimum cash flow yet has some upside to enhance living standards. Once you have these targets, subtract sources of cash flow, other than those supported by invested capital and you will be left with a gap (assuming these sources are less than the total desired cash flow) that needs to be filled by returns from investments. Sources other than capital investment include Social Security (in the US), possibly rental properties, annuities, retirement plans, etc. Amazingly, many retired people assume much more risk in their portfolio than what is required to support their targeted cash flow. This was the case with my parents. The first and most important step in personal financial planning (after goals are established) is to develop a probable asset allocation model that will support the minimum goals without excessive risk. You mentioned he also owned real estate, but didn't mention the value or other details. As such, I've left these assets out of this portion of the equation. You can include their effects when estimating cash flow requirements or availability of capital for investment. A realistic return target for a retired person living in the US (includes some risk due to an equity allocation of between 50% and 60%) is to beat US inflation by roughly 3%. With $200,000 invested to where the net after tax yield beat inflation by 3%, your dad could expect to run out of money in about six years if he was taking out $3,000 per month. Based on these investment return assumptions, your dad would need to reduce his withdrawals to about $1,125 per month to stretch the $200,000 to where it will last 20 years. Remember, the annual withdrawals are indexed for inflation so they will increase each year. I've centered all of my calculations at an annual inflation rate of 3.5%, but feel secure they will hold to at least +/-1% of this target.The below are fudge figures factors (F3's) based on the assumptions you can beat inflation by 3% net after tax and that inflation will be between an average of 2.5% and 4.5% per year. Simply multiply the annual cash flow target for the first year by the factor and the result is how much capital you'll need. Remember, these are fudge figures, but they do take into consideration that your annual cash flow (withdrawals) will grow at the rate of inflation. Note: These factors assume you will exhaust capital by the end of the time period.Years..........Factor20................14.625................17.130................19.335................21.140................22.8The ideas I've provided should be only a starting point and food for your thoughts and research. Retirement is a complex event and there are no one-size-fits-all solutions. To help someone through the process takes hours of dialog and planning. From your description, it sounds like your dad is investing on a wing and a prayer. This is almost always dangerous and disastrous. Chasing market beating returns, even when well researched and understood, is typically a recipe for failure in any form. Hopefully, you can convince him to establish some realistic targets. He may have to adjust his lifestyle goals downward, but he will probably be happier with less stress. Again, a personal tradeoff. Regards, pmcw
CervantesVive,Unfortunately, it sounds like your dad has fallen for the "easy money" lure that the con men always put out. No bank can possibly pay 24% interest. The Cayman Islands have had a checkered history.The problem is that misleading, pie-in-the-sky promises will always trump slow-and-steady real life. Witness the success of the lottery and casinos.If he has the "gold fever" it is very difficult to cure. We had a discussion about this in the Financial Scams board a while back.
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