What should my parents do with their recent house sale money?

[sirsavesalot]

Cliff notes. Parents sold their vacation house for ~$550k after fees. Currently have $300k in CD's at ~5% that are maturing next month. About $100k between checking and savings. Current house paid off. Zero debt. Almost $8k/month from pension and SS and they barely spend any money. Mom is 75 and Dad is 80. Living in central Ohio.

They called me and asked what they should do with their money. Their bank is pushing them towards an annuity, but I told them to pump the breaks until I did some research. I'm good at investing for someone my age but for someone their ages I'm not sure what the best path forward would be. Any input is greatly appreciated.

 

[athena53]

I would not get an annuity (although I could see why the bank likes them). They don't seem to need any more income. I'd put it in ETFs- a suitable mix of equities and fixed income, no fancy sector ones (IT, healthcare, etc.). The most scary possible scenario is one person in the house and one in LTC, which might drive your allocation mix. Are they putting any aside from their current income?

 

[FREE866]

Given their expenses are met I would look at it from the standpoint of who will be inheriting the money and what is the beneficiaries investment time horizon.

 

[Out of Steam]

The most scary possible scenario is one person in the house and one in LTC, which might drive your allocation mix.

It's scenarios like this that make me want to maintain more funds in retirement savings than spending a 4-4.5% annual draw will allow.

 

[audreyh1]

Do they have a brokerage account?

Also agree, no annuity. They might need a lump sum someday.

 

[OldShooter]

Start with objectives. What is the purpose of this money? If you don't know where you're going, any road will get you there. From what you say, the objective is not current income.

Our estate will be fairly serious seven figures and its goal is to provide bequests to the grands for schooling and a financial start in life and a bequest to DS so he has a comfortable retirement. Since this is long-term money it is largely invested in broad equity funds.

Someone concerned about paying for LTC will probably bias their holdings more toward fixed income and liability matching ladders.

The only reason to look at annuities is to enrich the salesperson. That is unlikely to appear on your list of objectives.

I would move the money out/to someone more trustworthy and look at a robovisor like Schwab offers. Their customer questionnaire is designed to determine objectives and select an appropriate portfolio. Their robos are not great, mostly because they hold too much cash, but they are not bad and are definitely easy. Fido has a robo program too.

 

[Kings over Queens]

Impossible to advise without understanding their needs and wants. It sounds like a first blush this is excess money they don't need today or in the near future to spend, which gives a longer term investment horizon.

What are their risk tolerance's?

On one hand you could help them invest what they feel comfortable in setting aside in an S&P 500 index to take advantage of the low fees and simplicity. Market goes up, they go up, market goes down, you get the point. Or, if you want to take the "do no harm" approach, put them in high interest online savings accounts. Both discover and marcus are currently paying 4 and change.

Final thought, how do they feel about doling out some of the money now to their ultimate heirs? "Mom, Dad, how do you feel about putting 10k each in brokerage accounts for your grandkids so they get a head start?"

 

[OldShooter]

... how do they feel about doling out some of the money now to their ultimate heirs? "Mom, Dad, how do you feel about putting 10k each in brokerage accounts for your grandkids so they get a head start?"

Good idea, but 529s would probably be a better choice of vehicle.

 

[equakesfan]

Assuming that they spend less than $8k/mo. and no serious health issues...
I'd like the idea of some 529s for the grandkids and the rest split between stocks and fixed income or split between stocks, fixed income and a REIT with whatever they are comfortable with in stocks (but not more than 75%)

 

[Texas Proud]

What other investments do they have

If none, then I would put in a mixed ETF about 40/60 and let it ride...

BTW, a small pet peeve.. it is actually 'pump the brakes'... not breaks... that is breaking something instead of stopping something...

 

[pb4uski]

Don't pump the brakes... stomp on them.

I advise that they set up a brokerage account with Schwab or Fidelity. Deposit the money there and put in in a money market fund for now. That'll yield between ~4.5% until they decide how to invest the money.

A conservative alternative would be a 5 year CD ladder. That would yield ~4% at current rates. But it all depends on what the money will be used for and their risk tolerance.

 

[ncbill]

Cliff notes. Parents sold their vacation house for ~$550k after fees. Currently have $300k in CD's at ~5% that are maturing next month. About $100k between checking and savings. Current house paid off. Zero debt. Almost $8k/month from pension and SS and they barely spend any money. Mom is 75 and Dad is 80. Living in central Ohio.

They called me and asked what they should do with their money. Their bank is pushing them towards an annuity, but I told them to pump the breaks until I did some research. I'm good at investing for someone my age but for someone their ages I'm not sure what the best path forward would be. Any input is greatly appreciated.

No annuities!

Those are for people who need additional income simply to live.

Stomp on the brakes, short-term, fixed income only, too old to risk principal.

Since they'll likely need a good chunk of those assets for long term care.

 

[hopefullyoneday]

Did the set aside money for taxes since they probably sold at a profit and since it was not their primary residence.

 

[Badger]

No annuities. But for the moment they could kick the can down the road with CDs (FDIC insured) or Money Market funds like VMFXX that are paying 4+% at the moment. Then wait until something better comes along they would be comfortable with. At 75 and 80 with a paid off house and $8k/month from SS and pension they should be alright for a while.

 

[Exchme]

With more cash flow than they spend, your parents clearly do not need an annuity, that is the bank trying to make money by taking advantage of old people. Infuriating that the bank was pushing that and even within the family of annuities, my bet is it was high priced dreck.

I like the idea of setting up 529s or UTMAs for the grandkids. Those can be invested in target date funds so your parents are not tasked with trying to keep a stock/bond allocation in line with the date of need. Part of the attraction of that is if your folks eventually need extensive long term care that would wipe them out, gifting a portion now would get the 5-year Medicaid clawback clock started.

At this point in their lives, my guess is it would be too hard to try to teach them about how stocks can give superior returns if they can weather the storm of occasional painful downturns. I recall when my MIL was that age and dabbled in a fund that held stocks, she dumped it immediately and went back to CDs when it lost some money - I recall her indignantly saying "it was supposed to go up!"

 

[Gotadimple]

Agree - no annuities.

If their current spending is covered and they are comfortable with it, they can continue to invest the balance conservatively to preserve it. But. They will need to pay the IRS for the capital gain on the sale. If they don't have long-term care insurance, they need to set aside their earnings from the sale in CDs or bonds to cover the cost of time in LTC for each of them.

If they haven't seen a fee-based financial planner, that's also a good first stop that could get them an estimate of what will be due in taxes, the impact of the gain on their Medicare premiums (B+D - it's called IRMAA), and covering potential long-term care expenses.

 

[MarieIG]

I also agree no annuities in light of their current cash flow. I would keep the majority of their funds in low risk options for potential LTC or in home aides, etc.

 

[Souschef]

We are blessed that we did not need the money from the sale of my condo some years ago.
We divided up the proceeds among our 4 sons.
We are in the process of selling our home since we have moved to an apartment.
We plan to divide the proceeds among our 4 sons. They need the money now, not after we pass. We believe the warm hand philosophy.

 

[albireo13]

Forget annuities. With annuities, those assets will never be seen by inheritors, if that is something your parents are about.
The bank is licking their chops over getting their assets into an annuity!

 

[pb4uski]

There is one form of annuity that might be prudent... a multi-year guaranteed annuity or MYGA. It is the insurer version of a bank CD but with key difference like more significant early withdrawal penalties and not FFIC insured but in exchange they typically have slightly better yields.

But I would stick with CDs.

 

[Route246]

As for immediately I would stick it in a SOMETHING LIKE SNSXX, Schwab U.S. Treasury Money Fund – Investor Shares, 7-day yield 4.44% until they figure out what to do with it. I say "SOMETHING LIKE" because all of the major brokerages have something like this. Park it there until they can decide.

 

[OldShooter]

Yes. Park it. There is absolutely no urgency here to make a long-term decision. Park it away from the annuity salesperson, though, and make it very clear to their management why* you are not leaving the money at this bank.

*IMO trying to sell them an annuity is beyond even the weak "suitability" standard for Series 7 registered reps. It absolutely a breach of fiduciary duty if that applies. The bank's poor compliance enforcement is the reason to move it.

 

[RobLJ]

Agree with no annuity, based on your description, and park in something like SNSXX (which is what I'm using in my brokerage).
They could consider muni CEFs which would generate essentially non-taxable income that they could do whatever they want annually, besides index funds to minimize annual taxable capital gains and dividends. I don't know their tax situation, but that's what I do in my brokerage, which now generates about 10k/year in income, most non-taxable. I do have a couple PIMCO taxable funds in there, but eventually will move them to one of our IRAs.