Is 86/14 too steep of an AA for a 95 year old?

Ronstar

Ronstar

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I've been comparing returns between our accounts and those of my MIL for a couple of years. Her largest account (94% of her portfolio) always gets better returns than my IRAs, and my taxable account (AA 94/6) is our only account that beats hers. After some research, I see the AA for her account is 86/14. I think 86/14 is too risky for a 95 yo. She would never live long enough for this account to recover if we have a significant downturn in the markets.

She's had this account with the same FA for at least 30 years. I've requested a meeting with the FA to discuss this. Not going to tell dementia ridden MIL (DW has POA). I'm thinking she should be 100% in cd's or something similar. Or certainly no more than 30% in stocks. She will need this $ if/when she goes to a nursing home, so I think now would be a good time to go with an extremely safe portfolio.

Thoughts?
 
Ronstar said:
I've been comparing returns between our accounts and those of my MIL for a couple of years. Her largest account (94% of her portfolio) always gets better returns than my IRAs, and my taxable account (AA 94/6) is our only account that beats hers. After some research, I see the AA for her account is 86/14. I think 86/14 is too risky for a 95 yo. She would never live long enough for this account to recover if we have a significant downturn in the markets.

She's had this account with the same FA for at least 30 years. I've requested a meeting with the FA to discuss this. Not going to tell dementia ridden MIL (DW has POA). I'm thinking she should be 100% in cd's or something similar. Or certainly no more than 30% in stocks. She will need this $ if/when she goes to a nursing home, so I think now would be a good time to go with an extremely safe portfolio.

Thoughts?
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If I may ask, in terms of "months in a facility" how much money does she have?

If I were to approach this for myself, I would assume DW and I would need $20K per month (total) beyond our monthly income (SS and Pension) to survive in a facility. Dividing that number into our stash (probably including our primary residence because we wouldn't need it) would give number of months our money would last.

I ask this because, if your MIL has only a few months worth of time (money) in a facility, then a downturn would be devastating with that AA. If 10 years worth, then I'd worry a lot less since even a 50% drop would likely recover and her time frame may be quite short in comparison.

Obviously, if I had "control" via POA or whatever vehicle, I'd be changing the AA tomorrow - just on principle. But if that's not possible for you, then you have to ask if this exercise is worth the effort? IOW can you convince MIL to change her AA? Is she competent to do so. Will the FA cooperate? etc.?

Best luck with this and blessings for looking out for MIL.
 
Absolutely agree, she should probably be roughly 20/80 , limiting risk of downturn, and the 20% should be in etfs like SCHD that have a good dividend, (will still pay in downturn).

Could even be 100% in Treasuries/CDs, and doesn't need an FA either.
 
I think it matters how much she has, and what she wanted before dementia. If it's a couple million or less, then yeah get it in individual treasuries/CDs/cash. If we're talking $5M, and she wanted to leave some for grandkids, etc. then I think more aggressive is fine.
 
Agree 100%. As I see my friends going into dementia and dying in their 80's I can't see a high percentage of equities doing any good for old folks if they fall in value in the event of a meltdown, which may be right around the next corner or from Black Swan event, which can happen in the blink of an eye.

Since I Darn near joined them last July with my clogged carotid artery incident, I am mostly fixed income in the event I need paid assistance in the very near future, and DD has to handle the finances.
 
Koolau said:
if your MIL has only a few months worth of time (money) in a facility, then a downturn would be devastating with that AA. If 10 years worth, then I'd worry a lot less since even a 50% drop would likely recover and her time frame may be quite short in comparison.
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This is what I was thinking. How bad would a 50% drop in value be? If that could be weathered, then I'm not sure I'd change the allocation. Quitting once you've won the game is one strategy but so is dancing with the girl who got you to the dance. Beyond, taking care of your MIL, another factor is understanding where the inheritance is going. Let's say she wanted the most potential money for her favorite charity and there was otherwise, plenty of money. Then, maybe being aggressive is consistent with her wishes. Just some thoughts. Generally, I'm in agreement with you that greater than 50% equities would need further consideration to seem reasonable for someone in their 80's.
 
Koolau said:
If I may ask, in terms of "months in a facility" how much money does she have?

If I were to approach this for myself, I would assume DW and I would need $20K per month (total) beyond our monthly income (SS and Pension) to survive in a facility. Dividing that number into our stash (probably including our primary residence because we wouldn't need it) would give number of months our money would last.

I ask this because, if your MIL has only a few months worth of time (money) in a facility, then a downturn would be devastating with that AA. If 10 years worth, then I'd worry a lot less since even a 50% drop would likely recover and her time frame may be quite short in comparison.

Obviously, if I had "control" via POA or whatever vehicle, I'd be changing the AA tomorrow - just on principle. But if that's not possible for you, then you have to ask if this exercise is worth the effort? IOW can you convince MIL to change her AA? Is she competent to do so. Will the FA cooperate? etc.?

Best luck with this and blessings for looking out for MIL.
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She probably has enough $ to last a few years or so in a facility. And I'm sure I could convince her to change her AA, but she would forget in the 5 minute drive to the FA's office if she has to go. I'd have to reconvince her in front of him.

As far as the FA cooperating - I'm sure he will. He has followed DW's instructions on withdrawals and RMD stuff on her mom's account.
 
Old women seem to hang on longer than old guys so the odds of her not "going down" anytime soon is probably in her favor. When I read the obits on my hometown paper online, I see many women dying in the upper 90's into the low 100's, all widows. Men are usually gone long before that.
 
Jerry1 said:
This is what I was thinking. How bad would a 50% drop in value be? If that could be weathered, then I'm not sure I'd change the allocation. Quitting once you've won the game is one strategy but so is dancing with the girl who got you to the dance. Beyond, taking care of your MIL, another factor is understanding where the inheritance is going. Let's say she wanted the most potential money for her favorite charity and there was otherwise, plenty of money. Then, maybe being aggressive is consistent with her wishes. Just some thoughts. Generally, I'm in agreement with you that greater than 50% equities would need further consideration to seem reasonable for someone in their 80's.
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She lives on SS, so her needs from the portfolio would be long term care if needed. Heirs are DW, and her 2 siblings. I've briefly brought up to DW's siblings about a year ago how their mom's portfolio outperformed mine and that I suspected that their mom's risk should probably be lessened. They seemed agreeable. I get the feeling that they would be angry with me if the market tumbled and she lost a bundle. One BIL is adamant that I lower the risk. I think I will give them the details before I go see the FA.

I suspect that I can at least convince the FA that 40/60 would be the maximum risk she should take. Even the heirs are at ages where the current 84/16 is too risky for them.
 
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The first question should be: "What is the purpose of the portfolio?"
Then: "How does the size of the portfolio comport with its purpose?"

Only then is it time to talk about investment strategy and AA. And then the discussion must include consideration of other assets like any pensions and SS.

@Ronstar, from your OP it is impossible to answer your question. If, for example, she has $10M then an aggressive AA will work just fine. Absent some really black swan like a nuclear war, she will always have enough money to pay of any foreseeable nursing home stay. IOW, her portfolio is already "extremely safe."

Alternatively, if she has $200K and covering nursing home costs is the main concern, then the current AA is not safe at all and your thoughts of changing it are probably well-founded.

WADR, getting all spun up about AA is not appropriate until you have answered the two questions, something that several posters in this thread have already implicitly pointed out.
 
Does she need this money to fund her living or long term care expense ? If so I'd get more conservative. If it is legacy money for her estate/heirs....I'd be 100% in equities.

Good problem to have at 95. Good for her!
 
OldShooter said:
The first question should be: "What is the purpose of the portfolio?"
Then: "How does the size of the portfolio comport with its purpose?"

Only then is it time to talk about investment strategy and AA. And then the discussion must include consideration of other assets like any pensions and SS.

@Ronstar, from your OP it is impossible to answer your question. If, for example, she has $10M then an aggressive AA will work just fine. Absent some really black swan like a nuclear war, she will always have enough money to pay of any foreseeable nursing home stay. IOW, her portfolio is already "extremely safe."

Alternatively, if she has $200K and covering nursing home costs is the main concern, then the current AA is not safe at all and your thoughts of changing it are probably well-founded.

WADR, getting all spun up about AA is not appropriate until you have answered the two questions, something that several posters in this thread have already implicitly pointed out.
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My recent analysis stems from a recent conversation with BIL2. We were casually talking investments and I mentioned that MIL gets better returns than I do. I told him that I would check AA, but I suspect that it was too risky for her. Her strongly suggested a low risk portfolio.

So part of my dilemma is the heirs giving me their ideas. I'm somewhat ok with her 84/16 - it's been working for years. I'll talk with the FA and see what he says.
Stormy Kromer said:
Does she need this money to fund her living or long term care expense ? If so I'd get more conservative. If it is legacy money for her estate/heirs....I'd be 100% in equities.

Good problem to have at 95. Good for her!
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She would need this $ for long term care, but probably not all of it. Maybe only a third of it. Who knows. And out of the 3 heirs, I know at least 2 of them don't need any more $. All of the heirs have been surviving at least 10 years retired without any $ problems.
 
I manage my mom's investments. She is going on 92 this year.
Stock exposure is at 12%.
 
Ronstar said:
She probably has enough $ to last a few years or so in a facility. And I'm sure I could convince her to change her AA, but she would forget in the 5 minute drive to the FA's office if she has to go. I'd have to reconvince her in front of him.

As far as the FA cooperating - I'm sure he will. He has followed DW's instructions on withdrawals and RMD stuff on her mom's account.
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Perhaps you can help her write out her "wishes" to present to the FA. Take the document with her to the FA and help her go through it with the FA.

I'd never want more than a 50:50 even at my age, but I know I'm in the minority on that. But in the 90s? Even 50:50 seems out of bounds but better than 86:14.

Good on you for helping and I wish you both luck on this.
 
Ronstar said:
....

She would need this $ for long term care, but probably not all of it. Maybe only a third of it. Who knows. And out of the 3 heirs, I know at least 2 of them don't need any more $. All of the heirs have been surviving at least 10 years retired without any $ problems.
Click to expand...

So if she had 40% of her bundle in ultra safe things like treasuries, then it seems the issue is solved as the account will still grow well , but even a 50% drop in equities, leaves her fine to pay expenses by cashing treasuries for probably the rest of her life, and give her a runway to wait for market return in case she lives a long time.

This way should there not be a big drop, or it's short lived, the heirs still inherit a lot.
 
Koolau said:
Perhaps you can help her write out her "wishes" to present to the FA. Take the document with her to the FA and help her go through it with the FA.

I'd never want more than a 50:50 even at my age, but I know I'm in the minority on that. But in the 90s? Even 50:50 seems out of bounds but better than 86:14.

Good on you for helping and I wish you both luck on this.
Click to expand...
Thanks - I like the written "wishes" idea
 
Sunset said:
So if she had 40% of her bundle in ultra safe things like treasuries, then it seems the issue is solved as the account will still grow well , but even a 50% drop in equities, leaves her fine to pay expenses by cashing treasuries for probably the rest of her life, and give her a runway to wait for market return in case she lives a long time.

This way should there not be a big drop, or it's short lived, the heirs still inherit a lot.
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This scenario is what I'm gathering from reading all of the great replies here. Cover the long term care safely, and invest the rest for growth.

And I just got done with a conversation with DW - enough safe to cover 2-3 years of LTC, and the rest in equities.
 
Ronstar, I appreciate your concern. She could certainly liquidate a pile and keep it in cash to pay for life. The markets at near record highs is not a bad time to cash in. If taxes don't bite too hard I'd cash in a couple years cash living expenses and enjoy her company.
 
Like Stormy I wonder about the tax implications of switching investment risk. What approach would you take toward that situation.
 
Stormy Kromer said:
Ronstar, I appreciate your concern. She could certainly liquidate a pile and keep it in cash to pay for life. The markets at near record highs is not a bad time to cash in. If taxes don't bite too hard I'd cash in a couple years cash living expenses and enjoy her company.
Click to expand...

ivinsfan said:
Like Stormy I wonder about the tax implications of switching investment risk. What approach would you take toward that situation.
Click to expand...
To be honest, I hadn't thought much about the tax consequences. I'll check - thanks! I'm sure the FA will bring it up - he's suggested that I not sell / switch investments for tax reasons before, so it's on his radar when people want to do something like this.
 
Stormy Kromer said:
Does she need this money to fund her living or long term care expense ? If so I'd get more conservative. If it is legacy money for her estate/heirs....I'd be 100% in equities.

Good problem to have at 95. Good for her!
Click to expand...
That was basically my thought in #6 as well...
 
Here's an idea. Run FIRECalc with her current portfolio and AA, a 10 year time horizon, her SS and any pension and nursing home expenses. From what you have written, it sounds like it will fail within a few years. Test it with the AA you are thinking of and see how the results compare to her current AA.

The tax implications are easy to assess. Is her money in taxable, tax-deferred or tax-free accounts? If she has signifianct taxable account money, log onto her account and look at market value, cost basis and unrealized gains/losses for each position.
 
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