Where a couple can put a fairly large amount of cash today.

[Bestwifeever]

Go with them to Schwab or Fidelity (where their options can be explained and risk analysis forms looked at, while holding their hands) before some helpful acquaintance of theirs learns of their situation and introduces them to "his guy" at EJ or worse.

 

[OldShooter]

... I think they should go to Fidelity or Schwab for some advice also.

Befor they do that I suggest one free download and a couple of easy-read books:

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

After reading they might still benefit from talking to an advisor, but they will be better-informed customers.

 

[pb4uski]

First, unless they are in bad health, they should probably delay taking SS... off-the-cuff I'd say FRA for her and 70 for him. Given what you provided in the OP, it looks to me like their SS would be ~$45k a year in 2021 $$$ if they both delay.

$1,500 at 62/70%*124%*12 + $1,500/70%*50% spousal benefit*12 = $44,743

Meanwhile, until he reaches 70, they can create a ladder of 8 $50k MYGAs that mature annually between now and when he is 70 that will provide what they need at a reasonable return.

The rest could go in a conservative blended fund like Wellesley (and don't look at it).

I think that is an overall AA of ~20/80: bonds being $400k in the 401(k) guaranteed fund + $400k of MYGAs + 60% of $700k in Wellesley

 

[W2R]

I wouldn't give them ANY advice, even if they asked for it (which I gather they have not done).

Here's my unsolicited advice which you should probably ignore:

Enjoy your friendship with them. If they ask, tell them what you would do, but point out to them that you even went to a bunch of strangers on the internet to see what they thought because you really don't know.

Worst case scenario is that you give them some kind of advice, they interpret it however they will, they lose their money and you lose their friendship. Try to avoid this. Life is too short to spend a lot of time rebuilding relationships.

 

[MRG]

Go with them to Schwab or Fidelity (where their options can be explained and risk analysis forms looked at, while holding their hands) before some helpful acquaintance of theirs learns of their situation and introduces them to "his guy" at EJ or worse.

+1

Guarentee the Eddie guy will put their minds to ease about market tops.

 

[ShokWaveRider]

I wouldn't give them ANY advice, even if they asked for it (which I gather they have not done).

Not sure where you got that from, as I did not say either way. But as you ask they did in the way of discussion. We know each other well and have advised in the past on other issues. We chatted about it. So that prompted me to ask the group.

They do live in a different state though so we can only provide limited support. I stressed that I would only gather information for them, but not give any specific recommendations as that was a good way to ruin a friendship if things did not go the way one expects. They do know that we are not fond of the stock market, although while we were accumulating we were heavily invested. But when we returned with what we though was enough we changed our approach.

All the input is good here so, once compiled I will simply send it to them.

 

[W2R]

I wouldn't give them ANY advice, even if they asked for it (which I gather they have not done).

Not sure where you got that from, as I did not say either way.

That's right. I must admit that I wondered why not. You cut out what I suggested you could do if they actually asked for actionable advice:

If they ask, tell them what you would do, but point out to them that you even went to a bunch of strangers on the internet to see what they thought because you really don't know.

Moving on,

But as you ask they did in the way of discussion. We know each other well and have advised in the past on other issues. We chatted about it. So that prompted me to ask [-]the group[/-] strangers on the internet.

(blue words mine, not ShokWaveRider's)

Is "discussion" and "chatting" the same as asking for specific, actionable advice? I guess we just see this differently. Apparently I offended you somehow and if so, my apologies.

 

[ShokWaveRider]

Apparently I offended you somehow and if so, my apologies.

Absolutely not, in no way did it even cross my mind. No apologies needed. And yes I got your point, thanks for it.

 

[FANOFJESUS]

Jam it into Wellington and then draw a fixed 4% of the whatever the balance is at the end of each year. Most years will enjoy getting a raise and occasionally will take a cut. No advisors or complicated financial plans needed.

I love the Wellington but since about 2/3 of the money is taxable it might kill the ACA help.

 

[rodi]

Google "Lazy Portfolio". Read about it and advice them.

 

[Sunset]

First, unless they are in bad health, they should probably delay taking SS... off-the-cuff I'd say FRA for her and 70 for him. Given what you provided in the OP, it looks to me like their SS would be ~$45k a year in 2021 $$$ if they both delay.

$1,500 at 62/70%*124%*12 + $1,500/70%*50% spousal benefit*12 = $44,743

....

+1
Especially as SS will be indexed to inflation, and will last as long as they are alive.

 

[RetireeRobert]

I'd suggest keep some actual cash, maybe $150000 as emergency fund (10% of their $1.5 million stash) which could fund three to four years living expenses. Then keep perhaps another 30% or $450000 in a government backed mortgage fund such as Vanguard's VFIIX which over time could yield 3% annually on average or maybe more. Then keep 40% or $600000 in a growing dividend stock fund such as DGRO which would give off a growing stream of dividend income. The final 20% or $300000 put in a broad index fund of strong companies for long-term growth such as an S & P 500 index fund.

 

[EastWest Gal]

All of these ideas are good but this one will give you the lowest income for the ACA which is good.

ACA cliff this year would have been about $68K had it not been wiped out by legislation for this year and next. $1.3M invested will not throw off that much in cap gains distributions and dividends. My after tax 70/30 portfolio of roughly double that amount throws off about $55K in dividends and little cap gains distributions.

The majority of that money will be used after they are Medicare age anyway. The main thing is they need to invest so they don’t lose to inflation. Inflation over a 30 year period will result in the money losing over half of its value to inflation alone, even at 3% inflation annually.

 

[FANOFJESUS]

ACA cliff this year would have been about $68K had it not been wiped out by legislation for this year and next. $1.3M invested will not throw off that much in cap gains distributions and dividends. My after tax 70/30 portfolio of roughly double that amount throws off about $55K in dividends and little cap gains distributions.

The majority of that money will be used after they are Medicare age anyway. The main thing is they need to invest so they don’t lose to inflation. Inflation over a 30 year period will result in the money losing over half of its value to inflation alone, even at 3% inflation annually.

They can pick any idea here. It does not matter so much which one it is that they do something.

 

[FANOFJESUS]

ACA cliff this year would have been about $68K had it not been wiped out by legislation for this year and next. $1.3M invested will not throw off that much in cap gains distributions and dividends. My after tax 70/30 portfolio of roughly double that amount throws off about $55K in dividends and little cap gains distributions.

The majority of that money will be used after they are Medicare age anyway. The main thing is they need to invest so they don’t lose to inflation. Inflation over a 30 year period will result in the money losing over half of its value to inflation alone, even at 3% inflation annually.

Very true for indexing. Now for the Wellington that might be a different story. I would guess it throws out about 7% of its value in dividends and capital gains.

 

[mrfeh]

Since they have an estimated life span for at least 1 of them of 30+ years.

My feeling is they HAVE to invest about 50% minimum in stocks or they will run out of money and only have their low SS (planning to take early) payments.

Run it through firecalc, with only interest/cash as the investment and I'm guessing it will be a big fail.

+1

This applies to everyone, regardless of age: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[MJ]

Keeping about $100K to $150K liquid and participating bank bonus promos for 2 people, if you are married, can earn you 3% to 4% short term bonuses. Currently, Citibank offering $700 for $50K which is kept until the bonus is deposited, no longer than 5 months.

 

[OldShooter]

They can pick any idea here. It does not matter so much which one it is that they do something.

Agree. Lots of tenable options.

But, almost all of these posts are analogous to giving them a fish instead of teaching them to fish. I think the OP's priority ought to be encouraging them to read and maybe take classes so that they can understand and modify their strategy as necessary going forward. Hence my earlier reading recommendations. Also maybe give them a fish to start with.

 

[38Chevy454]

The big problem with keeping in cash or very stable fixed income is that current rates are below the rate of inflation. They will lose money, even if they do not see an actual reduction in the balance. Given their ages, there are many years of life that needs to be covered and that requires some inflation protection. That means stock investments. I like Aaron's suggestion of keeping $150-200K in cash for ACA subsidy control and living expenses until SS kicks in, and then rest into the market for long term inflation protection and growth of the balance. Any money over 5 years timeframe should be in majority equities, not fixed income.


Good to advise them to do a little self education in the investment financial knowledge. Oldshooter's suggestions are a good start. Also any specific advice should come from a fee-only FA, not from ShokWaveRider. That is a sure way for them to blame you for any downturn, even if it recovers later and has larger balance in the end.


Since this money is after-tax, it would be wise to look at tax consequences as far as the dividends vs cap gain distributions. It may be beneficial to have more individual company stocks, vs mutual funds that kick out a big gain at year end. Dividend aristocrats may be a good option here since the (assumed) qualified dividends get preferential tax treatment.

 

[Katiek]

I tend to agree with the people who think they are risk adverse and will worry when the market goes down. In order to maintain your friendship, I'd be wary of recommending any investments, but would recommend a couple places where they could get some reasonably priced (or free) advice such as Fidelity, Schwab or an hourly adviser. I think you would also feel more comfortable not providing specific recommendations and worrying if your recommendations turn out ok for them.



Ii I were them I'd try to save some for liquidity and put the rest in a balanced portfolio with low fees and try to live off the dividends (or no more than a 3-3.5% withdrawal) since there isn't much cushion. But I thinkhaving a professional help set them up would make everyone feel better, as long as the fees aren't too high or ongoing.

 

[Sunset]

Agree. Lots of tenable options.

But, almost all of these posts are analogous to giving them a fish instead of teaching them to fish. I think the OP's priority ought to be encouraging them to read and maybe take classes so that they can understand and modify their strategy as necessary going forward. Hence my earlier reading recommendations. Also maybe give them a fish to start with.

That would be nice.

However, these people have had 50 yrs each of life to start learning and for whatever reason are stuck at: no debt, put money in bank.

I don't hold out hope that they are suddenly motivated to learn anything else, but of course OP should pass on the reading references.

 

[sengsational]

Save out some cash to cover some years of expenses, and the rest...what would be wrong with a corporate bond of a "too big to fail" company? You essentially get the guarantee of the US government, right? Buy and hold to maturity. Or a ladder of such. If they're afraid of equities for fear of "loosing money", they'll never "loose money" if they hold bonds to maturity. Their eyes will glaze over when you start talking about prevailing interest rates through time, so don't even go there.

 

[OldShooter]

... I don't hold out hope that they are suddenly motivated to learn anything else ...

I don't have anywhere enough information to presume anything about the OP's friends. If I were to leap to a judgment, it would be positive based on their paid-off home and lack of other significant debt.

 

[Sunset]

I don't have anywhere enough information to presume anything about the OP's friends. If I were to leap to a judgment, it would be positive based on their paid-off home and lack of other significant debt.

You are right.

I was thinking of my parents stuck at the same level of financial ability: no debt and put money in the bank to earn interest.

They had gone through the depression and had it drilled into them how everyone that had bet on the stock market lost their shirts/shoes/homes.
My Grandmother wallpapered her bathroom with the worthless stock certificates to get some value out of them.
I imagine going to the bathroom was a daily reminder of the horrors of stock ownership

 

[OldShooter]

My memory is probably at least a little garbled, but years ago there was a book by John Barth called the "The Floating Opera." The thesis was a riverboat on which there was a continuous play being performed. People on the shore saw a short bit of the play each time the boat came by. From their unique short and out-of-order snippets each one developed his/her own impression of the play.

I try to remember that floating opera when I am tempted to make judgments of other people. I see so little of their play and what I do see may be out of order. So who am I to judge?

Edit: Maybe too preachy. Apologies. No intent to insult.