Need help for a friend

[Tiger]

My friend is a retired 64 year old woman. She gets a pension & SS which is more then enough for her to live on. Her AA (all IRA) is:

Ford - 5%
GE - 3%
Intel - 6%
MMKT - 1%
Principal SAM Conserv Growth B (SBGPX) - 7%
Sentinel Sustainable Core Opp A (MYPVX) - 8%
Wasatch Core Growth (WGROX) - 12%
Annuity - Teacher's Retirement System of City of NY - 58%

She also has $160,000 is a savings account paying 1.29%.

1. Should she convert to a Roth?
2. Should she transfer all of her investments from the 3 investment companies they are with and consolidate them in 1 (Vanguard).
3. She is willing to invest $25,000 that is in her savings account into mutual funds.
3. I think she should stay with a 40/60 AA consisting of 3 or 4 index funds (or ETFs).
4. She is very conservative and is primarily concerned with preserving her capital.

I would appreciate any suggestions.

 

[Tiger]

^^

 

[Rambler]

Tiger, is the annuity in thE IRA? Is that her pension?

R

 

[Tiger]

In the IRA

 

[travelover]

OK, I'll toss out my 2 cents.

1) Generally, one converts to a Roth if they think they be in a higher tax bracket at a later date. Sounds like her situation is stable, except for changes in tax law, which are unknown.
2) I'd say yes, move the other investments to Vanguard and invest in something like Wellesley instead of individual stocks.
3a) Ditto Wellesley, Wellington or Target Retirement Income Fund
3b) You can mix Wellington and Wellesley to tweak the AA if you want. They are already diversified.
4) Any investment in stocks has the potential to lose capital, especially over a short period. She could just invest in TIPs or CDs.

You may also want to post over at Bogleheads, if you have not done so.

 

[Tiger]

travelover,

Wellesley is my largest holding and I was thinking of making it hers too. In addition I would have her buy an international index fund & a short term bond fund to fill in the gaps not covered by Wellesley.

She will buy CDs when/if the interest rates go up and then I will have her ladder them.

Thanks for your input.

 

[jIMOh]

RMD's start in 5 years or maybe 6... Roth conversions up to current tax bracket cap are a good idea. The RMDs might kick her into a higher tax bracket.

How does an annuity in an IRA work? Not sure on that one.

I agree on 40-60
I would also comment that leaving 160k in one account is a little much, she could put around 100-120k of this into mid term CDs and possibly get a better return.

 

[jayc]

She will buy CDs when/if the interest rates go up and then I will have her ladder them.

Thanks for your input.

I would start on the CD ladder now with 20K for 7 yr at 3.75% and buy one every 4 months. That would be a 200% increase over the current rate. I always go with the current highest rate because if you have a ladder, liquidity is always only 3-4 months away.

 

[Behan]

Tiger, if your friend's pension and SS is more than enough to live on, why take any risk at all with her investments? Why not be all bonds/cd's?

 

[haha]

I would start on the CD ladder now with 20K for 7 yr at 3.75% and buy one every 4 months. That would be a 200% increase over the current rate. I always go with the current highest rate because if you have a ladder, liquidity is always only 3-4 months away.

Perhaps I do not understand. In your example, wouldn't liquidity be 3-4 months away only after 7 years had elapsed?

Ha

 

[jIMOh]

Perhaps I do not understand. In your example, wouldn't liquidity be 3-4 months away only after 7 years had elapsed?

Ha

Don't put all 20k in the same CD.

if 3 month interval my math is this over 3 years

12 CDs needed (4 per year) so 20,000/12=$1666 per CD
do that every 3 months and in 3 years there is a CD maturing every quarter at the 3 year rate.

If 4 month interval over 3 years is done (3 per year) do 20k/9=$2222
do that every 4 months and in 3 years every 4 months has a CD maturing at 3 year CD rate.

If a 3 month interval for 7 years is desired, then the math is
20,000/28=$715 per CD (open one new CD every 3 months for 7 years and you have a 7 year laddder with once CD maturing per quarter). This assumes CDs are each 7 years.

 

[travelover]

Tiger, if your friend's pension and SS is more than enough to live on, why take any risk at all with her investments? Why not be all bonds/cd's?

I'm in a similar situation, but I am invested in stocks, too, to provide inflation protection to my pension and to grow my portfolio enough to allow me to self insure for long term care. OP's friend may have similar needs.

 

[Behan]

I'm in a similar situation, but I am invested in stocks, too, to provide inflation protection to my pension and to grow my portfolio enough to allow me to self insure for long term care. OP's friend may have similar needs.

Yes, I can see that, particularly the need to self insure for long term care. But if you already have more than enough coming in from SS and pension and you don't mind spending down your principle, couldn't it provide the inflation protection simply by tapping into it as your expenses rise? I know it depends on how much you have, what your expenses are and if you want to leave an estate etc.

I think if I was in a similar situation I'd be taking very little risk. Not because I couldn't grow my stash, but because I didn't need to.

 

[travelover]

..............
I think if I was in a similar situation I'd be taking very little risk. Not because I couldn't grow my stash, but because I didn't need to.

This is the dilemma that we all struggle with and the decision we all end up making more or less on a hunch.

 

[Tiger]

Thanks for all of the replies and suggestions.

The annuity is in a 403B.

She already has long term care insurance.

Her pension is COLAd.

She is willing to take some risk and wants to take $25k from savings and invest it in mutual funds.

I think that jIMOh's suggestion of buying 3 year CDs every 3 months is another good vehicle to use.

I will post the final decision.