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Help/advice needed for newly retired 71yo Father in Law
Old 06-06-2017, 06:57 AM   #1
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Help/advice needed for newly retired 71yo Father in Law

Hi, I'm not sure if this is the right spot for this.


My 71yo Father in-law will be officially retired in the next week after he has gone through his vacation time. He's been in a horrible 401k plan through a small local bank so we're eager to get it moved elsewhere. This year we've opened a Roth IRA and did 2016/2017 contributions and rolled a small traditional IRA over from Wells Fargo to Fidelity (where the Roth is).


My understanding is that Fidelity told him he will be able to roll his 401k into the traditional IRA only. Because of his age, he'll start taking his RMD's (required minimum distribution) this year. Currently, his delayed SS he just began taking and his VA pension cover more than his monthly expenses. House and recently purchased vehicle paid for.


He's recently widowed and not likely to travel except joining his kids on vacations (and those not being anything extravagant). He'll likely spend on hobbies (model trains, fixing/selling tractors) and eating out.


What would be a good thing to do with the RMD's and unused other cash he doesn't spend to keep earning, but also remain somewhat available in case something comes up?


I'm trying to help him since he's not very knowledgeable on investing. I'm just diving into investing/planning over the past year (I'm 41 and feeling behind the 8 ball myself) and am still learning. Any advice I should be aware of?


His savings are $128k in 401k, $21k combined in the two IRA's and maybe $50k in the bank. I need to determine a safe amount of the cash balance to put into some investments in the Fidelity account.


I've heard it said to plan on living long in retirement so not to get too conservative with investment mix. He is healthy (ran circles around the younger workers at his factory until his last day two weeks ago).


At the moment, there's no plan to take any more than the RMD from his accounts.

Sorry for rambling, but not sure how much detail is needed to be helpful. Again, any advice or things I should look into are appreciated. I'm just trying to help him get situated. He took care of a very sick wife for 30 years and never had any spare savings and retirement just never seemed to be something that they were able to plan for.
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Old 06-06-2017, 10:01 AM   #2
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If his 401K was after tax then it can only be rolled into a regular IRA. That could be converted to a Roth IRA if it made sense to pay the taxes, but if the present and future tax rates are the same (and low) then there is no point in doing it. If he does not need all his RMD's, then hold some of the excess as a cash reserve and invest the rest in a market index ETF. I would think that 1 to 2 years of cash should be plenty. Invest the rest in something, at least intermediate bonds for higher return than cash if you do not like stocks.
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Old 06-06-2017, 12:05 PM   #3
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Quote:
Originally Posted by DrRoy View Post
If his 401K was after tax then it can only be rolled into a regular IRA. That could be converted to a Roth IRA if it made sense to pay the taxes, but if the present and future tax rates are the same (and low) then there is no point in doing it. If he does not need all his RMD's, then hold some of the excess as a cash reserve and invest the rest in a market index ETF. I would think that 1 to 2 years of cash should be plenty. Invest the rest in something, at least intermediate bonds for higher return than cash if you do not like stocks.
Probably good advice. The one possible reason to roll into a Roth would be IF there is enough spare cash to pay the current taxes (maybe from the RMDs). Doing so effectively increases the size of the Roth IRA (by the amount of taxes paid.) The upgraded Roth IRA will grow tax free from then on. This can be complicated as we don't know what taxes will be doing in the future nor do we know all the other surprises life may throw us. One other advantage of Roths is their rules for inheritance. As always, YMMV SO it is very important to understand all the nuances and rules/regulations involved. I think it's also important that FIL ALSO understands all of this and THEN goes along with your advice. I'm 70 so trust me, FIL CAN understand this stuff and make his own decisions ONCE you direct him to ALL the relevant info. It's generous of you to help out, so good luck. Hope all works out well.
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Old 06-06-2017, 12:49 PM   #4
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Since you are relative novices, I suggest that you interview a few financial planners that are authorized to sell DFA funds. (https://us.dimensional.com/individuals) The funds are good, but main reason for the recommendation is the I think DFA's screening process filters out the hucksters, idiots, and crooks pretty effectively. IMO all of them are Registered Financial Planners, hence legally fiduciaries, but check (https://brokercheck.finra.org/firm/summary/40992) for either Series 65 or Series 66 licenses.

Even if you do not go with any of them, you will learn a lot. If FIL does go with an advisor, you can free ride and learn from him/her too.
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Old 06-06-2017, 01:26 PM   #5
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The RMD, if not needed for spending, can be put in a regular brokerage account. RMD just forever you to pay taxes on money previously tax deferred.... There is no obligation to spend it.
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Old 06-06-2017, 01:47 PM   #6
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what are his expenses and what is his payouts ie, pension, ss, va benefits? i need some more info but he certainly cant ride out a prolonged downturn in the market. At 71 he has on average maybe 13 years left total. How many of them will be quality? Tell him to spend his money now dont worry about building wealth , in my opinion that ship has sailed. If he runs out of money take a reverse mortgage.
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Old 06-06-2017, 02:02 PM   #7
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Since his SS and VA pension more than cover his monthly expenses and has assets as well, he is in a zone where he has "won the game". There are two schools of thought for people in that position. One school of thought is that since they have enough there is no need to take any risk so invest it in only safe investments... for example, FDIC insured CDs... that will generally keep up with inflation. The other school of thought is since you don't need the money that it can be invested more aggressively... even very aggressively... for splurges, heirs and charity or whatever. And of course, if either extreme is fine, anything in between is as well.

My suggestion would be to transfer the 401k to a Vanguard IRA and also set up a taxable account. Vanguard will calculate the RMDs and transfer the appropriate amount from the IRA to the taxable account. Your FIL can then take money out of the taxable account as needed/desired.

In terms of investments, if you want to keep it simple you can go all in with Wellington (roughly 60/40) or Wellesley (roughly 40/60) and declare victory... or perhaps Wellington in the taxable account and Wellesley in the IRA to get a tilt of tax efficiency.
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