Mom's money

[GREENBACK]

I recently lost my father and it has been a eye opening experience beyond the grief of his death. My dad was a very hard working man who served a full military career and a full career in the private sector. Unfortunately, he was not very wise financially. He was not in any kind of debt but his planning for the future left something to be desired.

My mom is now a widow and will be fine as she has a gov't pension from many years of working for the fed. gov't and there are no debts to be paid. Dad's benefits to her are virtually zero.

She has some bonds and other conservative investments. She also has about 90k in basically a savings account.

I want to give her advice on what to do with this money but I'm in new territory here and am not sure how to advise a 76 year old on how to handle this cash so that it's there for the rest of her life.

Anyone out there have this kind of experience? I know there are various types of annuities and such but I'm not sure what might be the best option for her. Any advice is greatly appreciated.

[disneysteve]

My mom is 79 and my dad died 17 years ago, so I've been in that situation for years now.

Does her pension provide enough income to cover her expenses? If it does, she's all set and the other money can be invested for the future. If the pension doesn't cover everything and she needs to generate some current income from the other money, that would change the advice, so tell us that first.

Also, does she have long term care insurance? If not, I would definitely look into that as part of her financial planning.

Without knowing any more, I would also say that nobody should ever be 0% in stocks regardless of age. Does she have any equity position currently?

[GREENBACK]

Her pension does cover her expenses. I'm not real certain about the long term insurance but will find out.

She has 0% in stocks and that's my concern. I am not sure what advice to give there. She is very conservative and may not accept my suggestions but I would like to lay out some options for her to consider. I think the 90k is basically just sitting still and could be used far more efficiently.

DS:
What type of equity position does your mother have? I'm trying to picture the future for her and the more ideas I can get, the more options we can consider.

[Beppington]

At that age none of her money should be in the stock market or anything else "risky". She doesn't have time for it the recover if it falls in value significantly. Time is not on her side to try to become super wealthy.

If she's not willing/ able to work, she needs a financial plan based on what she has in savings & current income. Sounds like it can be done easily since the pension covers her current expenses.

Just try to make sure she makes no big financial errors, like getting taken by somebody like putting a new roof on her house for $10K or something. With $90K in savings and probably no more coming, there's little room for errors.

[disneysteve]

My mom owns some individual stocks that my dad had bought when he was alive. We've sold a couple over the years when it made sense to do so. She also owns a broad market index fund. I'm not sure of the exact percentage of her portfolio the stocks represent but I'd estimate it is in the 10-15% range. No more than that. Just enough to give a little growth to the portfolio and help keep up with inflation.

With a pension that covers expenses, she's in great shape. I'm sure she doesn't need a 90K liquid EF. Figure out what she does need to cover possible emergencies - house stuff, car stuff, medical stuff and keep that in savings. Talk to her about the need for some growth and put 10-15% in something like a Vanguard Total Stock Market index fund. The rest could stay conservative, and should stay conservative for a 76-year-old. That could be CDs (though right now I wouldn't go out more than 1 year since rates are likely to rise), TIPS, I-bonds, corporate bonds, FNMA/GNMA bonds, etc.

[disneysteve]

At that age none of her money should be in the stock market or anything else "risky". She doesn't have time for it the recover if it falls in value significantly.

I disagree. This is money that she doesn't need basically. Her pension covers all of her living expenses. Her biggest enemy over time is inflation. The best hedge against inflation is equities. I'm not suggesting she put 50% or even 25% into stocks, but I think 10-15% still gives her a very conservative asset allocation with some protection against inflation.

Of course, she could just put all of her money into TIPS.

[Broken Arrow]

I am very sorry to hear about the loss of your father.

Can you perhaps provide a list of overall assets and liabilities if any?

What about her overall budget?

Also, I too am curious about this pension, and how much it will cover her living expenses. If possible, can you please provide a number?

---

On a separate note, the stock market is a very large place, filled with all kinds of equities. Not everything in there is a risky penny stock.

Until we get a clearer picture of what her situation looks like, we shouldn't discount all of her options for a proper asset allocation.

[wincrasher]

I agree - stay out of equities. She needs to stay conservatively invested, but look for income.

I think we are going into a period of higher interest rates. Treasuries are surely going to have to go higher as governments compete to sell their bonds. So she may have some low-risk options opening up this year. Keep to investments with short maturaties, so that when opportunities arise, you can act on them.

I am shocked to her that her husband's pensions and SS do not forward to her. Thought that was the way these things worked. I wouldn't easily give up on that and do some research.

[GREENBACK]

She has very little in the way of liabilities. Her pension will handle all of this with some left over. The only major asset she has is a house that's worth around 200k and some cash and bonds that may be worth a couple hundred k more.

I realize that there are investments that this money could go to but am not sure if I can convince her. This is not a survival situation at the moment.

If I could get her into something earning around 4-5% I would be happy with that. One consideration she has is for her inheritance to her grandchildren and great grandchildren. She understands inflation but is hesitant to "gamble" with her money.

Steve:
I'm aware of the Vanguard fund you mentioned and will look into it. I hope I can sell an idea like this to her. This isn't any kind of dire situation but is a chance to put some money to work.

[Beppington]

I disagree. This is money that she doesn't need basically.

If you believe an emergency fund should be available at all times, as I do, risking it in the stock market would seem un-wise to me.

Her biggest enemy over time is inflation.

Not to be morbid, but I don't see how inflation is a big concern for a 76 year old. I would think most single 76 year old women would sleep better with cash in the bank than stocks fluctuating up & down all over the place, & hearing all the negativity in the news. But maybe we need to know more about this particular 76 year old; Is she a frail old lady, or is she more like a tough 50 year old?

The best hedge against inflation is equities.

Agreed, if inflation is a concern to you, aka if you have the time frame for it to matter.

I'm not suggesting she put 50% or even 25% into stocks, but I think 10-15% still gives her a very conservative asset allocation with some protection against inflation.

In the end, as always, this is a judgment call ... They need to weigh the "potential" inflation-fighting benefits of a small part of her savings, say your 10-15% ($9,000-$13,500) figure, being in the stock market vs the comfort of having $90K in the bank & available at a moment's notice.

[Beppington]

I realize that there are investments that this money could go to but am not sure if I can convince her.

A-ha! Exactly my point: If you're having to "convince her", you should definitely not put her money into what is probably to her "the scary stock market".

If I could get her into something earning around 4-5% I would be happy with that.

Wow! Me too ... Let me know what you find!!

[GREENBACK]

Beppington:
Thankyou for your insight. I don't think I would suggest that she put the whole 90k into investments. Maybe half of it. We're not looking for aggressive growth by any means. As for an emergency fund; I think that's well covered.

My goal is to get some kind of growth here with a very low risk. Her health is well at the moment. I don't know what her interest rate on this money is but it's not much. As stated, inflation will begin to erode this. This isn't income for her right now so I believe something better could be done here but don't know exactly what

[GREENBACK]

I agree - I am shocked to her that her husband's pensions and SS do not forward to her. Thought that was the way these things worked. I wouldn't easily give up on that and do some research.

I was shocked as well. This was something we all sort of took for granted but it is not automatic. We have delved into this and it's true. My dad had a military pension and a pension from civilian employment and none of it went to her. My brother(a social worker) looked into this and confirmed the information.

My dad had a death benefit option thru the military but elected to not accept it. For those who haven't dealt with this stuff it's advisable to do your research beforehand.

[Beppington]

Beppington:
Thankyou for your insight. I don't think I would suggest that she put the whole 90k into investments. Maybe half of it. We're not looking for aggressive growth by any means. As for an emergency fund; I think that's well covered.

My goal is to get some kind of growth here with a very low risk. Her health is well at the moment. I don't know what her interest rate on this money is but it's not much. As stated, inflation will begin to erode this. This isn't income for her right now so I believe something better could be done here but don't know exactly what

Holy cow! is all I'm saying. You're gonna talk her into that??

What about her mental health, as in will she be mentally comfortable with half of her savings being put into stocks?

I have over 90% of my dollars in the market right now at age 41; That will not be the case when I'm 76.

[GREENBACK]

As I've said, this isn't survival money. She has other options. Maybe we won't do anything with this money but it never hurts to think about other options.