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Post-retirement investment advice needed

Old 03-06-08, 12:35 PM
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Post-retirement investment advice needed

Here's the situation... my parents are both living and still married. Dad is 80, Mom is 76. They've been retired for a number of years, and have been living quite comfortably. Their home is paid for, and both are in good health.

A few days ago, in the midst of a conversation with my Dad, he mentioned concern about the share price dropping in his IRA. I asked what kinds of funds he was invested in, and he told me he was 100% in a growth and income fund. Apparently it has been working for him for a number of years, he's been able to withdraw from the fund without reducing his principal value, but now that's no longer the case.

I was amazed, I thought they were probably 80-90% invested in some sort of MM or low risk fund and were just getting a steady stream of income off that fund.

They've got roughly $450K, and the best number I've been able to get out of them for their annual "needs" is $25K (although I still think he's being pretty casual in coming up with that number).

I've found a couple of retirement income funds, one with Vanguard and the other with T Rowe Price, that look like they might be ideal for their needs. I wanted to post here in case anyone had any other suggestions.
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Old 03-06-08, 12:41 PM
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You're on the right track. Low-risk stuff should work although I wouldn't put 50% of it in a money market or anything like that (unless it can at least earn 4%+). If your dad likes the idea of playing with risk, maybe keep a small amount (10% or less) in that fund?

They should probably be consulting a financial advisor.
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Old 03-06-08, 12:49 PM
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Originally Posted by The Bus
They should probably be consulting a financial advisor.
Agreed, 100%. However, my Dad doesn't want to "waste" the money (he's old and stubborn), so I'm trying to do my best to get them steered in the right direction. I'm sold on these retirement income funds, because they basically do what you're describing, with the fund manager as a "financial advisor" of sorts.
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Old 03-06-08, 01:06 PM
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They should be shifting to principal protection. Bonds, Utility stock and Treasuries. I agree that they should be consulting a professional. What is the status of their wills? That is another area to consider updating.
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Old 03-06-08, 01:33 PM
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Yes, I would definitely do a retirement income fund with Vanguard. Vanguard has much lower fund costs, and high expense ratios will add up over time and eat at your parents portfolio. Your parents need to keep as much of this money working for them as possible, and not pay needless expenses to fund managers or financial advisors.

A link to a great forum about low-cost Vanguard investing: http://www.diehards.org/forum/index.php
You can get get great advice here, but I think you are definitely on the right track to just keep it simple and low-cost and dump it into a retirement income fund.
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Old 03-06-08, 02:21 PM
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Well, the market is really in the crapper right now, so I understand his concern, but let me be a contrarian here.

If you look over a longer term, say 5-10 years, how has the G&I fund's performance compared to the MM? The combined life expectancy of your mom and dad (at least one of them) could still be 15-20 years, and they are not necessarily short term investors.

For 401K, IRA, etc, there is a Required Minimum Distribution after you turn age 70 (you can wait for 70.5, then take a double hit that year). The amount would be just a little under the $25K you Dad "needs." At age 76, a 22 year life expectancy is assumed in government table, so you take 1/22 of last year's yearend balance as RMD. The bite will increase each year.

There is no way a MM can outearn the RMD bite. A G&I fund wouldn't be able to do so for many more years even if the market were performing better right now. So the balance is going down, no matter what. The question is what investment strategy minimizes the rate of decline.

While it may pay to move some money to fixed returns, it may not pay to move it all. You really need to judge how his G&I fund is performing relative to the overall market. If worse than overall market. it is a bad choice. If about the same, it may not be a terrible choice, even if it looks bad this quarter..
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Old 03-06-08, 02:42 PM
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Just to point out, the Vanguard retirement income fund still is 30% stocks, so you still have some money invested for the longer-term. It is much more diversified than just being in a MM fund.

Holdings:
1 Vanguard Total Bond Market Index Fund 44.7%
2 Vanguard Total Stock Market Index Fund 24.4%
3 Vanguard Inflation-Protected Securities Fund 19.9%
4 Vanguard Prime Money Market Fund 5.0%
5 Vanguard European Stock Index Fund 3.3%
6 Vanguard Pacific Stock Index Fund 1.5%
7 Vanguard Emerging Markets Stock Index Fund 1.2%
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Old 03-06-08, 02:58 PM
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Originally Posted by Jadzia
Just to point out, the Vanguard retirement income fund still is 30% stocks, so you still have some money invested for the longer-term. It is much more diversified than just being in a MM fund.

Holdings:
1 Vanguard Total Bond Market Index Fund 44.7%
2 Vanguard Total Stock Market Index Fund 24.4%
3 Vanguard Inflation-Protected Securities Fund 19.9%
4 Vanguard Prime Money Market Fund 5.0%
5 Vanguard European Stock Index Fund 3.3%
6 Vanguard Pacific Stock Index Fund 1.5%
7 Vanguard Emerging Markets Stock Index Fund 1.2%
Yes, and the T Rowe Price is structured similarly, but with a higher percentage in stocks (around 35% IIRC). And he is not at all opposed to risk, it is me who is concerned about their state of mind more than anything else. Plus, the way he is talking (and monitoring the market), I'm afraid that he might pull out of the G&I after a major downturn, which wouldn't be the end of the world, but, again, it would dramatically impact their state of mind and thus their enjoyment of their retirement.

Thanks to everyone for the input, and Jadzia, thanks for the link, I'll read up tonight after Lost!
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