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10 years or less strategies
Old 09-22-2016, 05:31 AM   #1
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10 years or less strategies

It appears I am about to get called in to help my MIL manage her finances and make appropriate AA and withdrawal changes. She is a pretty healthy 82 yr old, lives by herself, very independent... great lady. Physically, while still driving and getting around like most 55 yr olds, her hearing, sight at night, and some leg/back issues are creeping on her. Genetics say she could have another 10 yrs. While I don't know the specifics of her accounts/NW, I know she has plenty to live on and will not be a financial issue for the family even if at some point she needs a private nursing home/medical care. As I get ready to jump into this, I am anticipating my guidance will depend on her response to the question "Is it important to you to leave X$ to the family/charity/other or are you fine spending your last $ on your deathbed?" ... I will be more tactful when I talk to her.

- If she wants to leave X, then what AA (50/50 ?) would you use for a 10 yr horizon and what withdrawal rate?
- If she is fine spending every $, what AA (30/70 ?) would you use and would you use a more of a principle withdrawal method maybe adding an additional 3 - 5 yr buffer for protection?

Part of what will drive my guidance is the near term financial needs of one of her kids who was in horrible accident recently. The medical/financial needs could approach $200K and I am sure she would like to help as long as she feels she will not be at risk of being a financial burden to the family in her later years.

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Old 09-22-2016, 07:24 AM   #2
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A healthy 82 year old is likely to be alive and kicking 10 years down the road. Why not plan to age 100 or so?

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Old 09-22-2016, 07:29 AM   #3
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I'd figure out her withdrawal rate right now; if it is 4% or below, at that age, it doesn't really matter if she is 50/50 or 30/70. If you Google return charts by allocation, there really isn't that much difference between the two.

If she is withdrawing enough that in 10 years she might run out, then I'd be more conservative because the portfolio might not have enough time to recover if we have a prolonged bear market.

A total return withdrawal method is generally the norm, regardless of AA.
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Old 09-22-2016, 07:35 AM   #4
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If she need the money to live on I'd say something conservative like 30-40% equity exposure (Wellesley-ish) but if most of the money is likely to go to her heirs then maybe something closer to 60-70% equities. Of course you never know if she'll need more for long-term care so I'd be careful about assuming she won't need it. Probably wouldn't go higher than 50-50.
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Old 09-22-2016, 07:37 AM   #5
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Originally Posted by MichaelB View Post
A healthy 82 year old is likely to be alive and kicking 10 years down the road. Why not plan to age 100 or so?
Yep, definitely. I remember when my grandmother turned 80, my guess was that she might make it to 90. At that point, she wasn't particularly healthy. She had macular degeneration and it got to the point she had to give up driving at the age of 75. She was also overweight, had Type 2 diabetes, high cholesterol, and other issues. When she had to give up driving, that really got the family worried, that she'd go downhill from losing her independence. But, she hung in there, and had her 90th birthday party at home. But, 6 months later she went into the emergency room, never fully recovered, and passed away roughly 2 1/2 months after her 91st birthday.

I still have one Granddad, on my Dad's side of the family, who just went into the emergency room this past Friday. He's almost 102. At this point, I'm sure he's going to go fast. But, at the age of 80, he was still pretty healthy. Had his wits about him, drove until he was 90 and gave it up voluntarily. At the age of 85, he was still healthy enough to replace a hose bib/outdoor spigot or whatever you call it at my house. Way back when Granddad turned 80, it didn't even seem to cross my mind, he was so healthy. The thought of trying to put a "shelf life" on him, like I did with Grandmom, never crossed my mind.
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Old 09-22-2016, 09:19 AM   #6
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VPW was made for answering these sorts of questions in the OP
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Old 09-22-2016, 09:40 AM   #7
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For my mom and MIL they put it all in Wellesley and no one has thought about it since. They withdraw as needed or wanted.
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Old 09-22-2016, 10:36 AM   #8
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I think the suggestion for a Wellesley type account seems very appropriate. They handle keeping the allocation around the 40 equities/60 fixed income, you collect the dividends or appreciation, and it is close to mindless on your/MIL's end of the deal. Easy for you, easier for MIL to understand.

If the total assets are more than she could realistically need and some anticipated remaining assets for passing through inheritance, then a higher equity allocation does seem reasonable.

Ultimately it probably does not matter so much, just ensure your MIL is covered for her expenses and has enough discretionary side funds to be flexible and have some fun (travel, shopping, luxuries, etc).
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Old 09-22-2016, 11:21 AM   #9
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Old 09-22-2016, 12:02 PM   #10
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Assuming she has plenty, do liability matching for the essentials. Even an annuity might make sense. So she is 100% sure that's covered.

Everything else is up for debate: Give away now, higher potential returns, assured income but slowly lose vs. inflation. It's preferences here, not need. Only she can answer.

It's no different than anyone else's retirement planning really. Although simplicity for older non-finance people is even more important, as well as protection against fraud, dementia and emotions.

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