Sis already has resent towards me and our older sister as we're "successful" and have relative financial security. Granted, my father setup my older sister, but I went to work for a tech company in CA around 2004 (use your imagination). So, younger sister feels she has to compete or cannot keep up with either one of us. Personally, because I have that much more (no bragging), I feel she has more resentment towards me. I offered to help her get a job in tech., just she doesn't want to study STEM or get a MBA in the sciences. There is little I can do with a Humanities degree in technology. So, again, she feels lost and angry.
Need suggestions for stable income
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Sis already has resent towards me and our older sister as we're "successful" and have relative financial security. Granted, my father setup my older sister, but I went to work for a tech company in CA around 2004 (use your imagination). So, younger sister feels she has to compete or cannot keep up with either one of us. Personally, because I have that much more (no bragging), I feel she has more resentment towards me. I offered to help her get a job in tech., just she doesn't want to study STEM or get a MBA in the sciences. There is little I can do with a Humanities degree in technology. So, again, she feels lost and angry.
Mom doesn't want an annuity, as she is concerned if they fail, then she knows she's really up sh!ts creek. She sold a 6% annuity because of that. After fees, it was netting 4%.
COcheesehead
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Not sure if Vanguard does it, but Fidelity will build a custom bond ladder based on the sweet spot in interest rates for $1 a bond commission. That is a deal.
She's requires more than 4% right now. Of the 2.5, 100k is going to Mom in cash. 400k is in cash. So there is only 2m in bonds and such. 2m x 4% = 80,000. She's pulling out 95,000 + a year with dividends and taxes. The dividends, on average right now, are pulling around 6%. As they come due and reinvested, there will be issues.
Souschef
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Sisters
After reading comments about sisters, I realize how blessed I was to have my sister take care of all of mom's needs. She handled her banking, care, and anything that came up. When mom died last year, her trust was set up to give my sister the condo. I had absolutely no resentment. As they said in the commercial, she earned it!
After reading comments about sisters, I realize how blessed I was to have my sister take care of all of mom's needs. She handled her banking, care, and anything that came up. When mom died last year, her trust was set up to give my sister the condo. I had absolutely no resentment. As they said in the commercial, she earned it!
Kudos. Unless medical or emergency, I do not give money to family.
Souschef
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What kind of a lifestyle does she has that she needs almost $100 K a year?
My wife and I live comfortably on less than $70K
I live comfortably on 75k a year as well. I do not go through her spending. The house costs a lot to maintain. She spends a lot on food. She doesn't travel. Long Island is an expensive to live. I do not live there, but it's a waste of money. Most of NY is.
retirementguy1
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pb4uski
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Somewhat different situation but what we did for BIL's Mom is put all her funds with Vanguard in Wellesley and then set up an automatic distribution to her for her expenses, and BIL and some of his siblings are the beneficiaries of that Vanguard account when his Mom passes on.
Your Mom needs $90k from the trust for her expenses and the property taxes plus she has $13k a year from your Dad's pension so she would have over $100k a year of cash flow. $90k is only 3.75% of $2.4 million and Wellesley distributes close to that each year in dividends and has returned over 7% annually for the last 10, 5, 3 and 1 years. So you could plunk it all in Wellesley, set up a monthly transfer of $6,250 to your Mom's local bank account and then just do periodic transfers as needed for the property taxes.
On the sister thing... your Mom is the beneficiary of the trust and your Dad trusted you to prudently manage the trust for Mom's benefit (not sister's benefit). I think what you can say, legitimately, is that sister is not the beneficiary of the trust and a $100k withdrawal for sister's education is not provided for in the trust and would not be prudent since your Mom may later need the money.
Another option would be to put it all in Wellesley and tell Mom that each year she will the balance at the beginning of the year divided by 100 minus her age ($2,400k/(100-74) = $92k*) and how she spends it is her business but it would not be prudent for you to give her any more and imperil her finances should she live to be very old and that is what your Dad wanted.
* or use the RMD tables if you prefer or just buy the Vanguard Managed Payout fund and Mom gets the ~4% distributions.... take your pick.
As one of the co-trustees of my Dad's trust, I am thankful that all my siblings are financially successful and we don;t have slackers hanging around looking for a handout.
Your Mom needs $90k from the trust for her expenses and the property taxes plus she has $13k a year from your Dad's pension so she would have over $100k a year of cash flow. $90k is only 3.75% of $2.4 million and Wellesley distributes close to that each year in dividends and has returned over 7% annually for the last 10, 5, 3 and 1 years. So you could plunk it all in Wellesley, set up a monthly transfer of $6,250 to your Mom's local bank account and then just do periodic transfers as needed for the property taxes.
On the sister thing... your Mom is the beneficiary of the trust and your Dad trusted you to prudently manage the trust for Mom's benefit (not sister's benefit). I think what you can say, legitimately, is that sister is not the beneficiary of the trust and a $100k withdrawal for sister's education is not provided for in the trust and would not be prudent since your Mom may later need the money.
Another option would be to put it all in Wellesley and tell Mom that each year she will the balance at the beginning of the year divided by 100 minus her age ($2,400k/(100-74) = $92k*) and how she spends it is her business but it would not be prudent for you to give her any more and imperil her finances should she live to be very old and that is what your Dad wanted.
* or use the RMD tables if you prefer or just buy the Vanguard Managed Payout fund and Mom gets the ~4% distributions.... take your pick.
As one of the co-trustees of my Dad's trust, I am thankful that all my siblings are financially successful and we don;t have slackers hanging around looking for a handout.
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What she has been receiving (in the past) is immaterial, as you know. Those safe investments aren't available anymore (which is why you made the OP). The only way you can change the situation and get higher return with the funds in the trust is to take more risk (i.e. higher volatility). How will that sit with Mom if the value of her investments falls and she has to take a cut? And if it happens for years in a row? But if the money were in an annuity her monthly checks would never go down--that's something that you cannot guarantee as long as you manage the investments yourself.
Bottom line: You run the trust for her benefit, and your dad did that for a reason. As you say, she doesn't handle money well. Ask her if she knows of cases where an insurance company has failed to pay an annuity in the US. Let her know that you are not a better investor than MetLife, and you sure don't have their reserves.
-- Take a look at what your 74 YO mom could be getting in an inflation protected annuity if you put $2 million into it.
--- If it is more than she would get every month using your investments and withdrawal rate, then why wouldn't you want her to have more every month...guaranteed for as long as she lives? And you are no longer the "bad guy" that she )and you sister need to beg for handouts. Everything is set on autopilot.
--- If it is less than what she would get every month using your investments and withdrawal rate (doubtful), then take a close look at your assumed rate of growth for her investments--is it realistic for the PE10 and bond environment we are in today?
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She was worried about the funds, so I said, if that is what you want, then fine, but your monthly income may be reduced. She understood the ramifications.
This might work. The account is at Schwab. I assume I can still set this up. Would buying now be an issue due to the higher share price?
One of her genius friends scared the bejesus out of her on annuities and that was why she wanted to sell the annuity. She'll not be able to sleep safe if some of the money is in an annuity.
You owe it to her and to yourself to show her the figures and explain the situation. If she refuses an annuity (after seeing the bigger check she could get every month, guaranteed by a big company), then at least she can't complain if your investment choices and WR result in cuts to her monthly checks in the future. "Mom, you didn't want the annuity that would have avoided this cut. I told you about the risks."
pb4uski
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You'd have to check and see if you can buy them through Schwab or not. You could just buy as current investments mature if you prefer... but both funds are mostly bonds and some stocks.
But at the same time, I agree with samclem that annuities are very safe... safer than most investment-grade corporate bonds and most bank debt IMO if issued by a high quality insurer... plus you have state guaranty funds backing them in the unlikely event that an insurer goes into receivership.
REWahoo
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+1
Instead of one large annuity, divide the purchase among several insurers. This might give your mom added reassurance that the failure of one insurer would not wipe out her income.
That said, I thing the Wellesley option is a great idea.
+1
I still agree with samclem considering your mom's age and I am one that does not like annuities.
Sorry if there is confusion, intl, but your quote below threw me off when you said that initial annuity was in her name.
Quote:
Originally Posted by intl View Post
The trust was written to give me a good amount of flexibility. The trust also provides funds for all beneficiaries for medical and emergency expenses. Also, the trust allots me a 1% management fee; which I do not take. She had 300k in an annuity in her name, bit she was concerned about the insurance company going belly up, so she paid a 5% cancellation fee and the funds were redeposited into the trust. That is part of the money she wants for her own use w/o any oversight. I just worry, as she gets up in years and medical problems pop up if there will be enough money to cover it all.
And like another said you can check with your state to see what the guaranteed limits are for an annuity. Split it into several to stay under limits.
I get you and she are annuity risk sensitive but honestly the situation you have is one of the best uses for them...if one was EVER going to use them. It is worth getting several quotes from several top notch companies.
You came here asking for investments to generate income for other vehicles you were using that are coming due. There is some good advice here given your Mom's age.
Join the club trying to find yields (without risk). Wellesley is a good choice but again the stock market is rather high at the moment and interest rate increases are around the corner and will affect bonds and bond funds (yes we have been saying that for a while now).
Best of luck to you.
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retirementguy1
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So your mother is the executor and you just guide her in investment choices. She owns the trust. Seems like you don't have a leg to stand on unless you declare your mother unfit mentally.
"One of her genius friends scared the bejesus out of her on annuities and that was why she wanted to sell the annuity. She'll not be able to sleep safe if some of the money is in an annuity."
She won't listen to you but will to "genius" friends. You need a lawyer.
"One of her genius friends scared the bejesus out of her on annuities and that was why she wanted to sell the annuity. She'll not be able to sleep safe if some of the money is in an annuity."
She won't listen to you but will to "genius" friends. You need a lawyer.
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pb4uski
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Sounds like you do not understand trusts. There is no executor. No one "owns" the trust... the trust is an entity onto itself, managed by designated trustees for the benefit of (one or more) beneficiaries.
The OP's Mom is the beneficiary of the trust and the OP is the trustee. As the trustee the OP gets to call the shots... just as his Dad wanted... which is why his Dad named him trustee.
The beneficiary gets what the trust gives her under the terms of the trust.. in most cases it is income from the trust's assets and other distributions at the discretion of the trustee.
The OP's Mom is the beneficiary of the trust and the OP is the trustee. As the trustee the OP gets to call the shots... just as his Dad wanted... which is why his Dad named him trustee.
The beneficiary gets what the trust gives her under the terms of the trust.. in most cases it is income from the trust's assets and other distributions at the discretion of the trustee.
retirementguy1
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You are right. Forgive me if I don't understand trusts. In the first post he did list himself as trustee.
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pb4uski
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No, I think that the OP calls the shots but the mother is just pressuring the OP to give her money from the trust so she can give it to the sister and the OP doesn't think it is prudent for him to do so because the trust is then at greater risk of not being able to provide for the mother in her old age.
While the OP cannot block his mother giving his sister whatever money the mother has, he can block the trust from giving money to the mother if he judges it is imprudent for the trust to do so.... which indirectly blocks mother from giving money to the sister because you can't wring blood from a stone.
While the OP cannot block his mother giving his sister whatever money the mother has, he can block the trust from giving money to the mother if he judges it is imprudent for the trust to do so.... which indirectly blocks mother from giving money to the sister because you can't wring blood from a stone.
Running_Man
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As much as I am not opposed to annuities do not put a large percentage of the trust in one. With present interest rates that seems like an emotional and not a logical solution when the portfolio is so large. Job one is to get the money to last, you need to stop yourself from worrying how mom feels about what you do and instead do the best you can for her. There is simply not a safe way to generate the income you need without going into the principal.
If I was you I would create a 30 year budget for the trust and determine how it can make 100K per year of inflation indexed payments as safe as possible. My personal solution would be 15% SDOG ETF, 15% Wellsely, 25% annuity, 20% 10 year US treasury OR CD ladder and 20% 5 year US Treasury or CD ladder. I would spend down over time the CD’s as they come due and let the stock components to build hopefully over the future.
In the 30 year projection I would have scenario’s for 2,3,4,5 and 6 percent inflation to see how the portfolio would hold up for each.
Goal is to make it last for your mom and then have the remainder for your sister. All you can do is the best to make money last for your mom, try not to let the emotions of everything else rule your investments that would be bad for the portfolio, your mom and your sister. There is not much more you can do than that and hopefully your family will know you are doing the best your possibly can for them.
If I was you I would create a 30 year budget for the trust and determine how it can make 100K per year of inflation indexed payments as safe as possible. My personal solution would be 15% SDOG ETF, 15% Wellsely, 25% annuity, 20% 10 year US treasury OR CD ladder and 20% 5 year US Treasury or CD ladder. I would spend down over time the CD’s as they come due and let the stock components to build hopefully over the future.
In the 30 year projection I would have scenario’s for 2,3,4,5 and 6 percent inflation to see how the portfolio would hold up for each.
Goal is to make it last for your mom and then have the remainder for your sister. All you can do is the best to make money last for your mom, try not to let the emotions of everything else rule your investments that would be bad for the portfolio, your mom and your sister. There is not much more you can do than that and hopefully your family will know you are doing the best your possibly can for them.
That's a very good point. And, if the OP can stand to spread out the solution for a while, it might also be good to spread the annuity purchases over a few years with different issuers to give an opportunity to get better annuity returns (assuming interest rates rise) and will certainly earn more mortality credits and likely higher monthly payments (because Mom is getting older).
Now, I'm normally all in favor of avoiding annuities and looking for better alternatives. But if the objective is to meet Mom's spending requirements for as long as she lives (not to pass on money to Sis or the OP), then an annuity (especially one with inflation protection) on a 74 YO is probably going to do this more effectively than any homebrew AA and withdrawal mechanism. The mortality credits are a huge factor--the insurer can afford to give a much higher monthly check to Mom than the OP can (even with the same underlying investments) because the insurer can safely use the average life expectancy of a large pool of insureds (about 13.5 years for a 74 YO woman) while the OP is forced to always plan withdrawal rates for the (unlikely but possible) situation where Mom lives to be 105 years old, so the money needs to last 30+ years. That gives a very different withdrawal rate. It also has the significant advantage of getting the OP out of the role of "giver of an allowance" and will provide Sis notice that there's no pot of gold when Mom passes away--Mom gets to spend the money while she's alive. The monthly amount will be known and unchanging (except for bump-ups for inflation). There's no need for Mom or Sis to lobby the OP for any special favors, advance payments, etc.
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I called Vanguard for annuity advice and assistance. So far, the rates are pretty low. I can do better in AA. After fees, it is around 2% before taxes. What the Fed has done to savers rates is unbelievable. I am going to add some Wellsely to the mix and start slowly. The trust was written to have a cash reserve, so I have to keep that in mind as well.
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