Looking for input from the brightest minds on the Internet!

[urn2bfree]

Maybe the title is damning with faint praise, but you all have demonstrated some great discussions about money on these forums so I come to you on behalf of my brother...and my mother. She cannot manage her financial affairs but otherwise is independent.
My brother is tasked with assuming investment control over my mother's assets now that my father has died.
She lives alone in a rented independent living place and is spending well less than 4% SWR currently. And with life insurance payouts on my father's death her portfolio is about to get a 30% boost.
So what should be done with that lump sum?
I believe given that she does not need it- and I am not lobbying for her to give big gifts to her kids right now- she can ivest it 100% in stocks and it should just go into a low cost Total Stock Market Index Fund. Her current AA is roughly 50/50. Her life expectancy is 8 - 10 more years.
Obviously this decision likely will affect me as I will inherit a significant fraction of what she has when she dies.
(Also, my brother is looking for my input.)


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[COcheesehead]

I think "significant fraction" is an oxymoron. LOL. I would go wth a quality balanced fund.

[samclem]

I don't think I'd look at the new money as a windfall and treat it differently from her present allocation. She's not spending up to a 4% WR now, but could something change her spending requirements (e.g. LTC, big medical expenses, etc?). If that happens and the market has crumped, would it have been better to have more in bonds/CDs, etc? Just my opinion, but the money is hers until it isn't, and unless her case is unusual there's also no telling when she won't need it anymore. I'd vote for just adding it to her pot, and I'd probably also decrease the equity allocation of that pot, given her age.

[Texas Proud]

I do the investments for my mom who is 97....

She spends very little and lives off of a small pension and SS.... I probably have her invested 50/50.... the problem is that I only have about 25% of her holdings I can do anything with easily....


The problem I have is that SHE wanted to invest in savings bonds and has a good amount in them... all have a person to pay on death and she does not want to touch them... lots of gain here....


She also bought a single payment annuity back in 89 (or earlier) that continues to grow... it has a death benefit so we do not access this either... also lots of gain....


So, I have about $50K in MM and ST bond funds if she needs any money... I do not think she will need anything, but it would take awhile to get me to where I have to sell her stock certificates or cash in savings bonds...

[urn2bfree]

Quote:

Originally Posted by samclem I don't think I'd look at the new money as a windfall and treat it differently from her present allocation. She's not spending up to a 4% WR now, but could something change her spending requirements (e.g. LTC, big medical expenses, etc?). If that happens and the market has crumped, would it have been better to have more in bonds/CDs, etc? Just my opinion, but the money is hers until it isn't, and unless her case is unusual there's also no telling when she won't need it anymore. I'd vote for just adding it to her pot, and I'd probably also decrease the equity allocation of that pot, given her age.

If the market tanks as bad as it did in 2008/2009, she would still be fine. And Given her life expectancy, she can afford to be MORE aggressive as there is little chance she is going to a) live 30 more years, and b) no way she can have that big of a change in her spending.
The portfolio was satisfactory for them BEFORE this windfall when my father was alive and basically requiring double the spending!


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[Katsmeow]

Yes, I understand what you are saying. And, I can see why it would be tempting. If it was me, though, I think would agree with samclem and just invest it according to the AA.

[bmcgonig]

Does she pay attention to how it is invested? If so and we have a bear market it may distress her more than a 50/50 AA. There's a lot to be said for allowing her a peaceful life even if the decision is "sensible" or not. At least that's my experience with my 98 yr old mom.

[EastWest Gal]

Especially that the stock market is at an all time high, it doesn't make sense for someone with a shorter time horizon to invest it in 100% equities. If she has a 50/50 allocation, that's what you should do. I recently moved to a 60/40 allocation as is recommended for my age and that I am retired this year.

Invest as if it's her money, not yours. Be careful that you are not investing with your own inheritance in mind and not her best interests.

If and when you inherit, you can do whatever you want with your portion of the portfolio, including cashing it all out and buying a portfolio of your choice.

I inherited a largish portfolio consisting of exactly one dividend stock, and that's exactly what I did. Since it was inherited the only capital gain tax I had to pay was on the change in value from the date of inheritance and the time it took to settle that portion of the estate.

I understand your feelings on this but I think mom would be a lot more comfortable if you do what she is accustomed to rather than follow your own interests. She should not have an added worry at this time in her life.

[urn2bfree]

Mom is not at all concerned. She has neither interest or concern with money. (Or ability at this point. She is very mildly demented.)

I agree that the market highs are a concern, but every study has shown that lump sums do best if invested in equities over the long term....and my best guess is that this particular lump is not ever going to be spent by her. She cannot travel. She has few interests. She easily has enough right now to support her for the rest of her life. They were doing okay even with my father's care costing them over $100,000 a year...and that expense is now gone.

I have not mentioned it, but she has annuity and Social Security income that covers much of her current spending.


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[pb4uski]

I play the same role as your brother for my mother's money (dad died over 10 years ago). Between a commercial rental property that she owns that I manage for her and her SS, it is more than she spends/needs.

In a sense, her investments are principally invested for her kids (me and my sisters) and since we are all in our 50s and early 60s, I invest it 60/40. In the over 10 years that I have been doing this, neither Mom nor any of my sisters have ever asked to see anything. Luckily, her portfolio has done pretty well so if they did it would not be a problem at all.

In the OPs situation, I would invest the life insurance proceeds in accordance with your target AA... either all at once or value average in over a year or 18 months if you prefer.

[CRLLS]

If your mother's expenses are mostly covered by SS and an annuity, as you say, how much of the rest is being used? You mentioned <4%. 0 is < 4%. so is 3.8%. With an expected life of 8-10 yrs, why does she need to worry about how well the investment side performs? Even if she converted it all to cash now, @ a 10% WR, she has her expenses covered. I think it comes down to what is left to you and your brother. Any asset allocation will leave you both with something. How much of "something" do you each need. If you need it for your own FIRE pots, then I'd vote for sticking with the 50/50 and don't worry about it. If it will only be fun money added to your own pots, then I'd be more aggressive. You 2 have more time to ride the ebb and flows of the markets.

Most importantly, put yourself in your mom's situation. What do you think she would have wanted for herself and for her children? I'd make sure she is provided for and then act as though you were her. There is no one right answer.

[RetireAge50]

I would use the money to rent a place overlooking the ocean. Have someone come in and do her nails, cook nice meals, etc. Spend the money on a super nice bed, leather chair, and a dune buggy. Spend it all over 10 years.

My grandma and aunt died with a lot of money and it seemed like such a waste. Why did they die with so much money while sleeping on a 50 year old mattress?

[W2R]

As others have suggested, I'd just invest it the same as the rest of her nestegg. I wouldn't treat it any differently. Problem solved.

[Animorph]

My mom was 100% equities. When I took over some of her finances I went with 75/25 stocks/bonds since she expected to draw from the portfolio irregularly for big expenses like a new roof. That allowed us to cover almost anything by selling bonds, just in case she needed cash during a bear market. Either AA has its pluses and minuses, depending on your requirements.

[Safari Lover]

Quote:

Originally Posted by Texas Proud The problem I have is that SHE wanted to invest in savings bonds and has a good amount in them... all have a person to pay on death and she does not want to touch them... lots of gain here.... She also bought a single payment annuity back in 89 (or earlier) that continues to grow... it has a death benefit so we do not access this either... also lots of gain....

She is a product of the depression. If she's comfortable with savings bonds, let her be.

Do you check on this annuity? Our RIA did one on one we had and it was shocking what we found out. It was out of its surrender term, we cash it out and got a 15% bonus and started annuitizing it. With the money being invested in something else through the RIA. since we don't need it.

[Texas Proud]

Quote:

Originally Posted by Safari Lover She is a product of the depression. If she's comfortable with savings bonds, let her be. Do you check on this annuity? Our RIA did one on one we had and it was shocking what we found out. It was out of its surrender term, we cash it out and got a 15% bonus and started annuitizing it. With the money being invested in something else through the RIA. since we don't need it.

Yes, we leave them alone... but some are going to be maturing in the next few years... the old ones at least earn 4%...

The annuity is still earning... we do not want to cash it in if we do not since it has a life insurance rider and if she passes it comes to us as life insurance....

So, it is matures and does not earn anymore, I will probably just leave it since the tax hit would be HUGE....