Advice to my brother?

[LXEX55]

First off, let me state that I make a point of never giving financial advice. I simply don't know enough about investing, and I feel that there are those out there who are in a much better position to advise. This case is different, the person asking my advice is my older brother, whom I love dearly, and who I am afraid may be an easy target. Plus, he specifically asked me, so so I am not giving unsolicited advice. My brother recently retired at 65 from a blue collar job. His wife is also retired. They have no children. Their condo mortgage is paid off. Both know nothing about investing. They will soon be joining me in Florida where they own a paid off condo. With his pension, and their combined Social Security, they can easily cover their monthly cost of living such as food, homeowner fees, entertainment, cable, etc. What they cannot cover with this income is annual costs such as car insurance, life insurance, medical costs over medicaid, and any surpirse major expenses such as the need for a new car, etc. They have about $410,000 in an IRA with Fidelity (my sister in law's 401k). This money is currently parked in a no risk money market account until they can figure an investment strategy. My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible. My advice would be to invest a portion in some stock funds, and perhaps a simple fixed annuity. My brother is being bombarded with calls from Edward R. Jones reps, people offering free steak dinners along with a "financial review", and similar offers. I don't want him to make a mistake or be taken advantage of He is an honest, straightforward man, who has always lived simply and frugally. I did suggest a fee only financial advisor and he was lukewarm on the idea. May I ask for suggestions as to how you would advise him to invest this money?

 

[UnrealizedPotential]

I don't have a fund name to recommend, but I was thinking something along the lines of a balanced fund that paid dividends every month or quarterly, maybe yielding 3 % but might have some growth as well. You can just google balanced funds to see if that is something that might work. On the conservative side.

 

[Aerides]

He's at Vanguard, so I'd also tell him take the advice of exactly no one that is soliciting him to do so, block them, report spam, ask for Do Not Call, etc.

I would go with a Bogle Lazy fund mix at vanguard, VTSAX for stocks, etc., and discuss the asset allocations with him to find a balance he's most comfortable with.

 

[USGrant1962]

While it is not popular with self-directed investors (like most on this forum), this sounds like a good situation for Vanguard Managed Payout Fund. That fund targets a constant 4% a year payout, in monthly payments. In bad market years they might be getting some of their principal back, but that is probably OK in this scenario.

Maybe put $250K there (spinning off $10K/year) and keep the rest in a conservative reserve like a TIPS fund.

 

[gerntz]

Not sure why he doesn't have Medicare at age 65 vs. Medicaid unless that's just a typo mistake. A Medicare Advantage program might be a good deal for them. Don't know why folks without minor children need life insurance ex funeral set aside. Assume they will be low mileage drivers and if they certify that to car insurer, that insurance ought to be way cheap.

 

[Senator]

They can skip the life insurance. Maybe skip the car and buy a golf cart instead.

Then invest in a dividend stock fund, like DVY or HDV.

 

[jIMOh]

I think a 40-60 allocation is about as aggressive as I would go.
$400k needs to generate $8000=2% return needed. 40-60 should be a 6% absolute return, so should help with inflation as the $8000 need increases.

 

[38Chevy454]

Vanguard Wellesley (VWINX) is a 40/60 balanced fund; which is a pretty conservative mix being nominally 60% fixed income, with the 40% in equities to help offset inflation concerns. Put it all there, set up to pay dividends out to him rather than reinvested, and tell him to enjoy retirement.

 

[Bestwifeever]

First off, let me state that I make a point of never giving financial advice. I simply don't know enough about investing, and I feel that there are those out there who are in a much better position to advise. This case is different, the person asking my advice is my older brother, whom I love dearly, and who I am afraid may be an easy target. Plus, he specifically asked me, so so I am not giving unsolicited advice. My brother recently retired at 65 from a blue collar job. His wife is also retired. They have no children. Their condo mortgage is paid off. Both know nothing about investing. They will soon be joining me in Florida where they own a paid off condo. With his pension, and their combined Social Security, they can easily cover their monthly cost of living such as food, homeowner fees, entertainment, cable, etc. What they cannot cover with this income is annual costs such as car insurance, life insurance, medical costs over medicaid, and any surpirse major expenses such as the need for a new car, etc. They have about $410,000 in an IRA with Fidelity (my sister in law's 401k). This money is currently parked in a no risk money market account until they can figure an investment strategy. My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible. My advice would be to invest a portion in some stock funds, and perhaps a simple fixed annuity. My brother is being bombarded with calls from Edward R. Jones reps, people offering free steak dinners along with a "financial review", and similar offers. I don't want him to make a mistake or be taken advantage of He is an honest, straightforward man, who has always lived simply and frugally. I did suggest a fee only financial advisor and he was lukewarm on the idea. May I ask for suggestions as to how you would advise him to invest this money?

So their money is at Fidelity--not Vanguard, right? Don't know if that changes the advice given above.

 

[jazz4cash]

He's at Vanguard, so I'd also tell him take the advice of exactly no one that is soliciting him to do so, block them, report spam, ask for Do Not Call, etc.

I would go with a Bogle Lazy fund mix at vanguard, VTSAX for stocks, etc., and discuss the asset allocations with him to find a balance he's most comfortable with.

+1 but I think it’s Fidelity, not Vanguard. Reach out to them for a safe, comfortable strategy to generate 2%/ yr. It may help if you participate in the call. Be specific about his goals and risk tolerance. If he is so inclined, Fido (and others) have lots of tools to determine an appropriate asset allocation. If he doesn’t feel comfortable with a Fido rep, you may need to guide him directly toward a conservative AA or a balanced fund .

 

[Cichon_007]

My brother is being bombarded with calls from Edward R. Jones reps, people offering free steak dinners along with a "financial review", and similar offers. I don't want him to make a mistake or be taken advantage of money?

BTW make sure he knows if he invests with Edward Jones, they're going to take $8k-$12k of his nest egg immediately when he invests as commission. Then they'll put him in funds that have fees that are 1-2% per year higher than Vanguard or Fidelity. This is the worst option.

He only needs a 2% yield + inflation, you can get that easily. He should start by calling Fidelity or Vanguard and asking about low fee funds.

I second Vanguard balanced fund VWINX.

VBIAX is also good and would bring in $8k in interest/dividends plus have a higher chance of appreciation due to having more stock.

 

[Bestwifeever]

They need to plan ahead for the time when one of them will lose half the SS and perhaps a pension depending on survivors' benefits. Did they do a month or two of tracking every penny they spend to see where their money goes? Maybe you could go through those numbers and see places to adjust. To me, two pensions and two SS payments, no kids or grandkids to help out, with a paid for condo, sounds like more than enough to support a comfortable retirement--the $400K could just go into half total stock, half total bonds, and the earnings be reinvested, with withdrawals as needed?

Your brother is lucky to have you.

 

[joeea]

My brother recently retired at 65 from a blue collar job.

With his pension, and their combined Social Security, they can easily cover their monthly cost of living such as food, homeowner fees, entertainment, cable, etc. What they cannot cover with this income is annual costs such as car insurance, life insurance, medical costs over medicaid, and any surpirse major expenses such as the need for a new car, etc.

They have about $410,000 in an IRA with Fidelity (my sister in law's 401k). This money is currently parked in a no risk money market account until they can figure an investment strategy.

My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible.

If his additional expenses are truly around $8k/year, he can just leave their money where it is. No risk. No maintenance. At that rate, it will last 50 years.

When you wrote "medical costs over medicaid", did you mean medicare? Or are they actually on medicaid?

Remember, the eventual need for a new vehicle is not a surprise. They should be planning for that event.

I did suggest a fee only financial advisor and he was lukewarm on the idea.

That's unfortunate. You might wish to push on this. A one-time checkup shouldn't be expensive, and will likely give him a much better feeling on their overall financial situation, budget and plans. You could offer to go with them, if they would value your help in understanding.

If they haven't both already started collecting their Social Security benefits, they should dig in with something like https://opensocialsecurity.com/ to see when the best time to start would be. In general, the higher earner should delay until 70 if they can. The lower earner often should start sooner than 70.

Do I understand that he has no retirement savings at all, and together they only have money in her 401k? No other assets at all?

Have they reviewed their beneficiary designations? Do they have an up to date will? Do they have long term care insurance?

 

[Chuckanut]

Like you I don't like to tell peopoe how to invest. Usuallly, I just tell them what I have done that has worked well for me. They can take what they want and leave the rest.

With that in mind, the first idea that came to mind was.....

Psssssst........ Wellesley.

https://personal.vanguard.com/us/fu...FundIntExt=INT&investor_disable_redirect=true

With returns in the 6% area for the 3-5 years periods (that is the time frame most important to me) he can take out 2% a year and leave the remaining 4% in the fund to help counter inflation, and increase his overall wealth. That will help handle the large unexpected expenditures.

Unlike an annuity, he keeps control of the principal. And Wellesley is low maintenance from his point of view.

 

[gerntz]

They need to plan ahead for the time when one of them will lose half the SS

Your brother is lucky to have you.

Why would they lose 1/2 the SS? If one dies, the survivor keeps getting the larger one.

Yes on lucky having bro.

 

[joeea]

Why would they lose 1/2 the SS? If one dies, the survivor keeps getting the larger one.

Right.

The survivor will lose some percentage of their combined total. At most it would be 1/2.

 

[Go-NoGo]

BTW make sure he knows if he invests with Edward Jones, they're going to take $8k-$12k of his nest egg immediately when he invests as commission.

+1

That will be the most expensive steak dinner he will have if he decides to go with EJ.

 

[SnowballCamper]

My question is, how should they invest this $400,000+ in order to be able to meet the above mentioned annual costs (which should come to about $8,000 a year, not counting medical or the eventual need for a new car, etc) with the least risk and least maintenance possible.

I would put it all in Vanguard managed payout VPGDX. At the 4% payout it will be a bit more than the $8k you need. This would be the least maintenance option, but not the least risk. Money Market or CDs would be the least risk to principal loss, but then your inflation risk is higher. Need to decide what kind of risk you can live with... Of course an annuity would do much the same thing, but at a higher cost.

 

[Bestwifeever]

Why would they lose 1/2 the SS? If one dies, the survivor keeps getting the larger one.

Yes on lucky having bro.

Yes, of course, I should have said “up to half”—what they receive now will be diminished and imo that needs to be planned for. Expenses may go down by more than the last SS, so that should be part of the calculations too.

 

[kgtest]

Like you I don't like to tell peopoe how to invest. Usuallly, I just tell them what I have done that has worked well for me. They can take what they want and leave the rest.

With that in mind, the first idea that came to mind was.....

Psssssst........ Wellesley.

https://personal.vanguard.com/us/fu...FundIntExt=INT&investor_disable_redirect=true

With returns in the 6% area for the 3-5 years periods (that is the time frame most important to me) he can take out 2% a year and leave the remaining 4% in the fund to help counter inflation, and increase his overall wealth. That will help handle the large unexpected expenditures.

Unlike an annuity, he keeps control of the principal. And Wellesley is low maintenance from his point of view.

Right. Soo, usually if I make it to the asset allocation strategy, and start drawing out a pie of how X is one asset, and Y is the other, and these pies need to be balanced/rebalanced... yeah I loose most everyone hahaha. I have drawn quite a few pies in my day, only 2 people have kept them. I usually draw them on a little index card...

1/4 VBK 1/4 VOT 1/2 MGK/VUG Of course all my peers are still accumulating, so I am guessing the pie for someone in there 50's might include some less risky assets.

 

[GravitySucks]

Well first off, congratulate them on accumulating over $400k and having a paid off mortgage. The $400k wealth alone puts their family near the top quartile of families aged 65 to 70 in america. The condo in top probably puts them over.
Has he called Fidelity and asked if he could talk to an advisor? While they don't qualify for the personal advisor services I'd be surprised if someone wouldn't be happy to talk to them. (Warn him about the annuity sales pitch he may get though.) Do you use Fido? My Fido guy was happy to talk to DD who has close to 0 investable. Maybe yours would be happy to give a one time consult. If not, maybe it's time to talk to Chuck.
As for straight advice, I'll go in with the Wellesly Wellington choir above. Or Fidelity Puritan if they want to stay with Fido.

 

[Finance Dave]

I won't give a specific fund name but agree with most that a conservative fund is appropriate, one that gives off income/dividends.

One key thing a couple people have mentioned is risk tolerance. Some people get very worried if they check their balance and it goes down...so you should counsel him to take some risk tolerance questionnaires....here is one example...

https://www.ifa.com/survey/?gclid=EAIaIQobChMIr97n1ODL5AIVyP_jBx3BhwnPEAAYASAAEgKu2fD_BwE#individual

With ANY investment there is risk, whether you realize it or not. Even the money market you refer to carries risk, it's called inflation risk. The question is how much risk and what types of risk is he comfortable with.

Good luck and you should be admired for helping him.

 

[LXEX55]

Clarification: yes, I should have said Medicare, not Medicaid (I told you I am not good at this). Yes, his money is currently with Fidelity, not Vanguard. I thank all of you for taking the time to respond to my post. In a day or so, I plan on printing off this entire thread and going over it with him and his wife. Any further advice or food for thought would be welcome. I simply am not expert enough about finance to give him sound advice, therefore, I turned to you folks.

 

[Finance Dave]

Maybe instead of just printing out the responses (which may be overwhelming to him), you boil the ideas down to 3-4 options with a pros/cons column....and then let him choose from those options. Give him some ownership in the whole thing. Sure, ok to keep the forum responses to the side...but I think reading all this just might scare him.

 

[Sunset]

Like you I don't like to tell peopoe how to invest. Usuallly, I just tell them what I have done that has worked well for me. They can take what they want and leave the rest.

With that in mind, the first idea that came to mind was.....

Psssssst........ Wellesley.

https://personal.vanguard.com/us/fu...FundIntExt=INT&investor_disable_redirect=true

With returns in the 6% area for the 3-5 years periods (that is the time frame most important to me) he can take out 2% a year and leave the remaining 4% in the fund to help counter inflation, and increase his overall wealth. That will help handle the large unexpected expenditures.

Unlike an annuity, he keeps control of the principal. And Wellesley is low maintenance from his point of view.

This would be good.
Personally I would suggest 1/2 in Wellesley and 1/2 in Wellington fund.

The OP's brother's wife can move her 401K to Vanguard easily (just call Vanguard to request the move). This is only needed if Fidelity cannot invest them in those 2 funds.

Going with EJ would be like shooting himself in the foot, every year....