Trying to help my mid-60's parents with their retirement $$$, have questions

[glock35ipsc]

On New Years eve, my Grandmother passed away. From the initial reading of the will, my Dad and his two brothers should each receive about $50,000 each. In casual conversation, I asked my Mother where they planned on putting it. She said they would put it in their "retirement savings account". After fumbling for words, I asked "savings account??"

Turns out their retirement money (about $50,000 total, not including the possible money from Grandma, yikes!!!!) is in a savings account at their bank. I asked her for a statement, and about fell out of the chair to see that it earns a whopping 0.75% APR!!!

I have tried to find out what they had and where they had it in the past, but my Dad is a hard headed Dutchman (I know where I get it from!). He was insistant that they had it under control.

I have convinced them to let me help them shift their funds out of the savings account and do something different. I KNOW I can get them into something better.

So, I am asking for some suggestions. I should add that my Dad has owned an excavating business for 25 years or so, and when he semi-retires (as he puts it), my brother will take over the business. Dad plans on having an income of about $2500 from the business. My mother gets a pension from the Postal Service, but I'm not sure of the amount. She says that with SS she should be getting about $2500 also.

The have very little debt, house paid for, etc.

Could I get some suggestions on what to do with their money? My first thought is to go with a Roth at Vanguard, but I'm not sure how to allocate the money. I don't want to get to aggressive since they don't have alot to lose and a short time until the will be needing it.

I'm was also wondering about having them delay taking withdrawls from SS for a few years. It that a good idea?

Any suggestions on what type of vehicles to saddle their money to would be appreciated.

Thanks in advance,
Bob

 

[Nords]

He was insistant that they had it under control.

Bob, we get this type of question a lot, and before you invest any effort to "solve" the problem I should point out that it doesn't appear that anyone's asking for your advice or help-- and it may not be welcome.

It sounds like their needs are few and they wouldn't be interested in boosting their savings beyond Treasuries or CDs. I'd butt out before you step on your tongue and get everyone riled up...

 

[brewer12345]

Hmmm, mid 60s, $5k or so in monthly income, Medicare eligible, no debt, paid off house - where is the problem? Assuming the income meets their needs, I don't think there is any reason to reach for teh stars with their money. I think the main thing that needs to be done is to put the money somewhere safe that earns more than .75%. Either help them move the money to a higher-yielding savings account (E-loan or similar), or help them set up a brokerage or treasury direct account taht will allow them to buy short term treasuries and CDs.

 

[glock35ipsc]

He was insistant that they had it under control.

I should have followed that up by saying that was some time ago. They are both now interested in seeking something better than a bank savings account at less than 1%. They were more than blown away at what my wife and I have in our retirement accounts at our age, and now after seeing what they have and where, are interested in shifting to something that will serve them better.

The subject came up when I asked what they plan on doing with the inheritance , and the reply was their retirement savings account. They asked what we used for our retirement money, and I told them about the different investments we had, and what our returns were. That's when Mom brought out a statement from their savings account and we saw what it was earning.

Maybe "convinced" wasn't the best choice of words. We all agree that they could do better. But they have never explored any other options, because they didn't know of any other options other than the bank. They are now aware that there are better options for them, and since my original post, Mom has called twice and Dad called once with questions. So they are interested in doing something different, but as I said, they are just now learning that there are other, and better options.

brewer12345 - I did mention the CD ladder to them and how that would work, and they liked the idea, and I also brought up bonds. And you are right, I'm not trying looking for double digit returns, just something safe that earns better than 0.75%!

I should also add that Dad's income from the business could go away if my brother decided that he was tired of eating dirt. If he ever decided to get out of the business, that income stream could go away. But on the other hand, he would probably receive some proceeds from the sale of the business. This scenario is probably not likely, but does exist.

 

[Warthog]

Bob, we get this type of question a lot, and before you invest any effort to "solve" the problem I should point out that it doesn't appear that anyone's asking for your advice or help-- and it may not be welcome.

It sounds like their needs are few and they wouldn't be interested in boosting their savings beyond Treasuries or CDs. I'd butt out before you step on your tongue and get everyone riled up...

Ditto.

My parents are in much the same situation. When they started their business a few years ago, my wife and I tried to advise them (mostly dad). I didn't want to get involved at all, I knew better. However, my wife (a CPA) wanted to help them 'get off the ground'. There was constant tension, most of the time revolving around fiscal responsability (my parents have never been very good with money). Although dad will never admit it, I'm pretty sure he wouldn't have been successful in the early years had my wife not 'kept him in check'.

Ironically, many of the things we wanted to do with the business are now starting to show up. He even hired a CPA (not my wife) to do his books, etc. Mom says a lot of the stuff we suggested are suddenly great ideas coming from the CPA and other 'advisors'.

Dad's the same way with his retirement savings (or lack thereof). When I first started 'getting smart' in investing I'd try to help them out. But dad wasn't fully disclosing his assets (which makes allocation a bit rough) and kept coming up with these hair brained ideas. Eventually I just stopped trying.

For some nut job reason, parents don't want to heed advice from their children. I think is was on this forum I read a line that went something like you can't give advice to people who changed your diapers

There's probably books on how to deal with aging parents (in terms of finances, healthcare, etc.). Perhaps someone can recommend one?

I realize it's like watching a train wreck, and you want to step in, but trust me, you'll only make matters worse.

-Warthog

 

[DangerMouse]

My thoughts are either a high yielding money market account or laddered CD's at PenFed.

We have the opposite situation that you have. MIL thinks she is a financial genius. I am constantly getting links showcasing her good ideas. She does not seem to get the correlation between high returns and increased risk. Earlier this year we had to loan ILs $15k, you can not imagine how distressed I was a week later to receive a link to some investment scheme that guaranteed 15% returns with a lock in period of 5 years that they were going to invest our money in. ILs just don't get that this is not a good thing for people in their 80s.

 

[JustCurious]

MIL thinks she is a financial genius. I am constantly getting links showcasing her good ideas. She does not seem to get the correlation between high returns and increased risk. Earlier this year we had to loan ILs $15k.......

If they are such financial geniuses, then why did they need to borrow money from you?

 

[DangerMouse]

If they are such financial geniuses, then why did they need to borrow money from you?

My thoughts exactly, however after 13 years of marriage and numerous fights on the issue with DH, I have learnt to shut my mouth as all it does is cause stress between us. We are in agreement that ILs are never going to get it, and no amount of trying to force it down their throat is going to make a difference.

MIL can not see any link between her continual need to shop and their financial situation. She puts it all down to FIL not earning enough when he was working. Problem is they retired without any real hobbies or interest beyond the church. Result is many of their friends have now died and they sit around waiting to die. They really are the poster children for how not to retire, finances not in order, no real plan.

 

[brewer12345]

I should have followed that up by saying that was some time ago. They are both now interested in seeking something better than a bank savings account at less than 1%. They were more than blown away at what my wife and I have in our retirement accounts at our age, and now after seeing what they have and where, are interested in shifting to something that will serve them better.

OK. In that case, I think that some Pen Fed CDs might be a good choice. Barring that, a good balanced fund like Wellesley, Wellington, Fidelity Puritan, or even something as pedestrian as SWBGX would be appropriate. Before you do anything other than savings accounts or CDs, you should have a conversation with them about risk.

 

[haha]

Many people are good at assigning blame. I would be very careful about suggesting anything other than insured CDs, or as someone mentioned, a Treasury Direct Account.

Also, don't overlook what social benefits you Dad might be getting from his local banking. I remember being confused about why my Dad kept so much money in his local S&L. Then I went down with him one day. They treated him like a king. They had a nice meeting room, and a lounge with lots of coffee and donuts. There were always other old guys who enjoyed rolling around in their money to shoot the bull with. Not to mention the cute tellers, who wouldn't give an old fart the time of day away from the bank, but were attentive in that environment

Ha

 

[BarbaraAnne]

Also, don't overlook what social benefits you Dad might be getting from his local banking. I remember being confused about why my Dad kept so much money in his local S&L. Then I went down with him one day. They treated him like a king. They had a nice meeting room, and a lounge with lots of coffee and donuts. There were always other old guys who enjoyed rolling around in their money to shoot the bull with. Not to mention the cute tellers, who wouldn't give an old fart the time of day away from the bank, but were attentive in that environment

Ha

My MIL is like that, also. She keeps over 20K at her local bank in a non-interest bearing account. Why? Because she thinks they will not like her if she moves the money to a MMF, like Vanguard. She is very sensitive as to what the tellers think about her. I guess that comes from living in a small town. We keep telling her how much this costs her each year, but despite the fact that she is very frugal about everything else, she just won't move the money.

Fortunately, she has some CD's that earn some good returns so she can make ends meet.

 

[cute fuzzy bunny]

Wellesley or target retirement income.

Unless of course you dont feel like being kicked out of the family the moment one of them turns in a negative year, in which case go with the higher yielding money market or penfed cd ladder.

Perhaps a nice holding of vanguards tips fund or some directly held tips.

 

[2B]

My only note of caution is to not try to go too far too fast. They have their money where it is and they (think) they understand that. At least, they are comfortable with it. They need to be educated every step of the way in a very patient manner. Anything else will scare them and cause them to either revert to their comfort zone or blame you for everything.

 

[vickifool]

Treasuries!

I recently advised a 75-year-old friend of mine to open a Treasury Direct account so that she could get a better interest rate safely. She's very happy with the results so far. Getting the interest deposited into your regular bank account didn't hurt either!

Vickifool

 

[Helena]

It sounds like their needs are few and they wouldn't be interested in boosting their savings beyond Treasuries or CDs. I'd butt out before you step on your tongue and get everyone riled up...

I agree.

Your parents are very conservative and probably want to make sure
their money is safe and FDIC insured at the local bank... a CD is your
best bet.

If you put any of their money in the stock market and lose a dime.
You will be persona non grata

 

[Dawg52]

I agree.

Your parents are very conservative and probably want to make sure
their money is safe and FDIC insured at the local bank... a CD is your
best bet.

If you put any of their money in the stock market and lose a dime.
You will be persona non grata

I agree. I would just go with your local bank cd's. I opened a brokerage account for my parents so they could consolidate all their cd's through one source and make it easier to manage. The downside of that is the brokerage account reflects the market value of the cd and it would drive them nuts to see it go down in value although they would of course get the full value paid back at maturity. Another thing is their brokerage account statement printed a standard statement, stating something to the effect, that your account is not federally insured. That would drive them nuts too even though I told them each bank on the statement is insured. I wish I had a dollar for every time they asked me about it.

My mom is 89 years old, so your parents being much younger might understand it better. But that is why I recommend just going with local banks on the cd's.

 

[whitestick]

But they have never explored any other options, because they didn't know of any other options other than the bank. They are now aware that there are better options for them, and since my original post, Mom has called twice and Dad called once with questions. So they are interested in doing something different, but as I said, they are just now learning that there are other, and better options.

Why not invite them to this board, and have them "lurk" like so many others do, to give them education on other options. Nothing better then teaching them to "fish", rather then to give them a fish.

 

[OAG]

PENTAGON Federal (insured savings) Credit Union. Join, if not otherwise eligible, for $20. Now paying 6.25% APY on 3-7 year CD's. Probably the best rate for CD's in the past 4 or 5 years.

I and DW are in our mid-60's and also have always been conservative in our investing (virtually, but not always, in CD's). Now at our age we are fully in CD's. It works for us and we can sleep well at night.

 

[glock35ipsc]

Stocks are not an option here. I did tell them about CD's and how they could ladder them, treasuries, and bond funds. I gave them some ideas and recommended that they contact my former financial planner to give more ideas and if they decided to do anything, they could have him set things up. They are ready and willing now, they just never new there was something else beyond the bank.

 

[wstu32]

CD


Agree!

 

[spideyrdpd]

Ugh certificates of depreciation.
Would they be ok with some money in funds. Maybe 25% ?
At this point I wonder if there are any advantages to cd's when you have people paying so much on higher yield accounts. Like the one with ing.

 

[CCdaCE]

Sounds like they'd be comfortable with something between Money Market - About 5% yield ignoring taxes. You can write a few checks a month from this account. ($250 min.)

and

the Penfed CD's others have mentioned.

Personally, I'd go with Vanguard Target Retirement Income Fund

But, that may have too many stocks (30%) and be too volatile for their tastes. The Target Retirement Income fund would be expected to hold up against inflation better than just CDs or Money Markets.

I'd encourage leaning more towards CDs and the Money Market if they're not used to stock market risk.

As far as the Roth, I think they can "only" put $5k (I think? Assuming they're over 55?) each into it, assuming they have enough earned income.

-CC

 

[wstu32]

not bad