Advice for older parents

[madringal]

Oh man, that has got to be stressful. Is the home they live in paid off?

Definitely get the advice of a financial advisor, but they may be too old for annuities. And their lack of liquid funds might make them ineligible for compliance reasons.

[Cappy]

Sept 30, 2020 10:37:17 GMT -5 madringal said:

Oh man, that has got to be stressful. Is the home they live in paid off?

Definitely get the advice of a financial advisor, but they may be too old for annuities. And their lack of liquid funds might make them ineligible for compliance reasons.

It is stressful!  Their primary residence is paid off, thankfully. 

Up until this point the rentals were a great alternative to a traditional retirement cashflow since he could easily repair everything and manage. Now that his memory loss is progressing that has proved more difficult. 

I know I'm unlikely to fix their money incompetence but I'd at least like to point them in the right direction as to what to do with proceeds.

[awkwardpenguin]

I think I would encourage them to "save it for a rainy day" and see if they can live without the $600 in cash flow, but it depends how tight their budget is.

I think it's important to have a realistic idea of what they can withdraw from a fixed amount of money and have that money last their lifetimes. At their ages, it's probably 6-8% of the total. So that's between $4800 and $6400 a year, which are both less than the $600 a month they were getting in cash flow. This will be true for all their money if they sell the rentals and convert them to investments for retirement.

But, I also think people who sort of fly by the seat of their financial pants are not going to suddenly become concerned with safe withdrawal rates. I'd encourage them to either save it all or drawn down just 6-8%, but realistically, I'd make peace with the idea that they'll likely spend it all.

Edited to add: most of what is written about withdrawal rates is for 30 year retirements, and says you can withdraw 4% safely.  I adjusted that up based on them being a bit older and based on this article's findings: www.financial-planning.com/news/the-ideal-annual-withdrawal-rate

[wildrice]

I am not an expert on this, but I'll just share my thoughts. I think talking to an actual financial adviser might be useful, too.

At those ages, especially if one of them already has declining health, I am not sure that any sort of investment is a great idea. Investing in something like the stock market would take years to really pay off (and carries risk) and I am not sure that buying a property and using profit from rental income would end up helping a lot either. Do you have any idea how much equity they have in the other 2 properties they hope to sell? If they are all similar, let's say you have 240k to work with. If you invested that 240k into a new rental, how much will you realistically get each month in profit? Let's say it's 1k, which depending on the property might be a really high estimate. You'd need to own the rental for more than 20 years before you'd break even on the 240k you invested into it. Honestly, in that case, I'd just keep the 240k in an account and withdraw 1k a month from that instead. It would be a lot less work and result in the exact same amount of income, plus I'm sure there would be months with a rental where something breaks, a tenant doesn't pay, etc and they wouldn't even get the money.

[Cappy]

Sept 30, 2020 12:39:15 GMT -5 wildrice said:

I am not an expert on this, but I'll just share my thoughts. I think talking to an actual financial adviser might be useful, too.

At those ages, especially if one of them already has declining health, I am not sure that any sort of investment is a great idea. Investing in something like the stock market would take years to really pay off (and carries risk) and I am not sure that buying a property and using profit from rental income would end up helping a lot either. Do you have any idea how much equity they have in the other 2 properties they hope to sell? If they are all similar, let's say you have 240k to work with. If you invested that 240k into a new rental, how much will you realistically get each month in profit? Let's say it's 1k, which depending on the property might be a really high estimate. You'd need to own the rental for more than 20 years before you'd break even on the 240k you invested into it. Honestly, in that case, I'd just keep the 240k in an account and withdraw 1k a month from that instead. It would be a lot less work and result in the exact same amount of income, plus I'm sure there would be months with a rental where something breaks, a tenant doesn't pay, etc and they wouldn't even get the money.

This is along the lines of what I was thinking too. Nothing will solve their issue of having not prepped for retirement. I estimate proceeds from all rental units might be around 200-250k and while I could likely turn a good profit for them managing college rentals in my area, I don't really know if I want to entangle myself in that way. 

Their primary residence is worth another 250-350k so downsizing to free up that equity is the long-term plan but he is strongly opposed to it and I agree that now is not the time due to his memory issues. That home is his security blanket. He built it with his own hands. 

RE: financial planners-- what type do I need to help them find? They aren't really looking to purchase a bunch of investments, only get advice on cashflow/survival and maybe asset protection as it relates to a future nursing home for him.

[wildrice]

Sept 30, 2020 12:50:38 GMT -5 Cappy said:

Sept 30, 2020 12:39:15 GMT -5 wildrice said:

I am not an expert on this, but I'll just share my thoughts. I think talking to an actual financial adviser might be useful, too.

At those ages, especially if one of them already has declining health, I am not sure that any sort of investment is a great idea. Investing in something like the stock market would take years to really pay off (and carries risk) and I am not sure that buying a property and using profit from rental income would end up helping a lot either. Do you have any idea how much equity they have in the other 2 properties they hope to sell? If they are all similar, let's say you have 240k to work with. If you invested that 240k into a new rental, how much will you realistically get each month in profit? Let's say it's 1k, which depending on the property might be a really high estimate. You'd need to own the rental for more than 20 years before you'd break even on the 240k you invested into it. Honestly, in that case, I'd just keep the 240k in an account and withdraw 1k a month from that instead. It would be a lot less work and result in the exact same amount of income, plus I'm sure there would be months with a rental where something breaks, a tenant doesn't pay, etc and they wouldn't even get the money.

This is along the lines of what I was thinking too. Nothing will solve their issue of having not prepped for retirement. I estimate proceeds from all rental units might be around 200-250k and while I could likely turn a good profit for them managing college rentals in my area, I don't really know if I want to entangle myself in that way. 

Their primary residence is worth another 250-350k so downsizing to free up that equity is the long-term plan but he is strongly opposed to it and I agree that now is not the time due to his memory issues. That home is his security blanket. He built it with his own hands. 

RE: financial planners-- what type do I need to help them find? They aren't really looking to purchase a bunch of investments, only get advice on cashflow/survival and maybe asset protection as it relates to a future nursing home for him.

Good question - I don't know. You might have to pay someone for advice vs getting their advice in exchange for buying something from them. I wonder if something like the AARP would have a list of resources? There must be someone out there who specializes in this sort of common problem, but that's outside of my wheelhouse unfortunately.

[Poppy]

Maybe you should try posting on the forums at bogleheads.org. They skew a lot older and have a lot of knowledge about money management in retirement, planning for nursing homes, etc.

[laterz]

Would they let you help them budget and review their spending?

[sdlaura]

Investment industry lurker here...any chance she’d consider giving it to you to hold in an account and distribute a certain amount per month? So they don’t ‘blow it’ like you said. Given their ages and potential near term needs I would probably put it in a savings account with as high interest as you can find and call it a day.

[SusanBAnthony]

Oct 1, 2020 13:53:06 GMT -5 Cappy said:

Oct 1, 2020 12:13:41 GMT -5 sdlaura said:

Investment industry lurker here...any chance she’d consider giving it to you to hold in an account and distribute a certain amount per month? So they don’t ‘blow it’ like you said. Given their ages and potential near term needs I would probably put it in a savings account with as high interest as you can find and call it a day.

Possibly. I was sort of thinking along these lines....like just set up a money market account or even high interest savings in their name for now but have her give me the logon info so I could set up auto distributions monthly and monitor the balance. I'd prefer to keep it out of my name because I have some other investments things going on in this year that could make taxes an issue. But that's certainly something to look into as well. 

This is what I was thinking too.

Put the money in an account and you send them a check every month. Even if it is in their name, have the statements sent to you and just leave them out of it (if they are ok with that).

I wouldn't invest it at their ages and their presumed risk tolerance, I'd just put it in a money market or I guess you could look at a vanguard target retirement fund for retiring now.

[marie]

When my grandmother had dementia an advisor that specialized in elder care was worth their weight in gold. It started to become obvious that she would not be able to live at home forever, the care was too great, so planning and setting up accounts in a way that reduced nursing home costs was crucial.

[Cappy]

Oct 5, 2020 9:24:17 GMT -5 marie said:

When my grandmother had dementia an advisor that specialized in elder care was worth their weight in gold. It started to become obvious that she would not be able to live at home forever, the care was too great, so planning and setting up accounts in a way that reduced nursing home costs was crucial.

Was this a financial advisor, CPA, or lawyer? My personal attorney happens to be in elder law so maybe I should ask her where to start. Future nursing care for him is my mom's top stressor financially. 

[marie]

They were a lawyer, but definitely was wearing a financial advisor hat too. They were able to draw up documents and provide advice. The timing of ownership (her name remaining on titles/deeds) was important, so the sooner the better.