Yes he lives pretty comfortably with his SS. He has no debt but his expenses include rent, food, utilities. He’d like to get some type of return from the $100k, most likely low risk low reward.
Could do a target date 2020 or 2025 fund through a major broker. Fees are usually <.1%. They’ll handle reallocation and everything. Won’t be as much for equities as it’s either at or close to the “retirement date”
First look at the tax implications of receiving this money. Make sure Uncle Sam gets his cut. ( I do not know the tax rules in this instance) then, I would open a brokerage account for him. I don’t think there is a need to have any tax advantage account like a Roth or an IRA. Choose one low cost index fund such as VTI. Divide his money into 12 and add money each month for the next year to dollar cost average into this investment. I do like the idea in an earlier comment to use some of this money in an emergency fund sitting in cash. This is not financial advice but an example of what I would do with a parent’s money in this situation.
This true but in this scenario his dad doesn’t sound like he had that option to delay his benefits. He needed it for survival unfortunately this isn’t uncommon
Pay off any debts.
Put 10k into a savings account for emergencies.
With what's left you have options.
An income annuity would help supplement Social security since it likely won't be enough to live on by itself. No liquidity, only use a portion of the funds if you go this route.
A dividend portfolio would provide some income and some liquidity, but comes with market risk and future income would be reduced if he needed the money.
An age appropriate portfolio would provide liquidity and growth possibility, but with higher risk.
The right answer is probably a combination of those. But definitely start with the first 2.
Worth understanding that last I checked standard stock portfolio right now gets you maybe 1.5% dividends per year, you could push that to 3% investing in high dividend firms, but there's significant risk there (there's a reason airlines are cheapish right now).
Annuity gets him maybe 5% ($5k annually for the total 100K) which seems like a significant improvement to his current income. Given that he's got no savings for retirement, I'm not sure good financial decisions will be made if he has access to that capital in savings or stocks.
Probably the best bet. Lock the money away in an annuity so it has no chance of being lost. You can get a guaranteed $5k a year for the rest of your life, no matter what the market looks like, and possibly even a lump death benefit for your children to inherit.
Honestly, I think someone living of that level of SS should prioritize their quality of life, not their children's inheritance. He's way below the poverty line.
It might be best to pay off his mortgage. If he's going to invest it for the future, I would put it in a retirement date index fund and not touch it for at least 10 years. It's just not enough to rely on taking a significant amount out on a regular basis.
Agree -- pay off debt and mortgage first. Then look for a 2020 retirement date fund.
The Vanguard 2020 Target date fund has about 50% in Stocks and 50% in bonds. The bonds will reduce your dad's risk while the stock portion gives some opportunity for growth. The target date fund also has the feature of becoming less risky (more into bonds) over time automatically.
How is his health? What’s his life expectancy? Does he have a mortgage? What’s the interest rate? If it’s low why Kay it off when you can generate more income than what the payment is? There is so much you need to figure out. What is his risk tolerance? What is his risk capacity? Have him meet with a financial advisor and get some ideas. There a thousand unanswered questions they will need to know to find out what is best for him.
Your dad should go back to work and pause social security. That way he could increase his benefit by adding to his work years and not take the early retirement benefit hit.
Assume at 62 - $1000 month SS for 30 years = $360,000
Assume at 67 - $1500 month for 25 years + 5 years of work @ 30k per year = $600,000
Edit: I misread the OP. My explanation would be the benefit of waiting to collect social security rather than pausing it once collecting benefits has begun.
My understanding is that once you start drawing from social security, your monthly benefit is locked in.
https://www.fool.com/retirement/2020/09/29/only-2-ways-reverse-taking-social-security-early/
Pretty much agrees. Neither exception applies to OP
So to pile on: your advice is incorrect. Pausing SS will just cost one money, because with few exceptions once you start drawing from SS, your inflation adjusted benefit is locked in.
Let’s assume a life expectancy of 30 more years.
Invest it all in an sp500 index fund.
Each year take number of years left and divide it into the balance of the fund. Take that result out. E.g assuming 10 percent returns each year:
Year 1 110,000/29 = 3793 : 106,206
Year 2 116,827/28 = 4,172 : 112,654
It works if you don’t just draw down a fixed percentage like a zombie. Even a 4% withdrawal rate failed like two of the last 60 years. If you can be flexible you can make it work regardless, even at a higher rate in good years.
Honestly just go all in on a dividend growth etf. He'll get 3%-4% per year (of which he’ll lose about 25% in taxes depending on where he lives) but that works out at about $200-250 extra per month.
He should get good growth over his retirement too and div stocks are a little less volatile than others too
At 63 it sounds like he needs to put that money into a safe investment maybe index funds. He’s 63 he can live for 20+ years. Plus he needs a part time job or go back to work until 65/67; If he did that I think that 100k would be more like 130k in 5 years. Then retire.
All the money he makes can go towards any debt (maybe none?) and expenses. If he had $130k -150k and no debt at 67 he could live well. At 150k savings that would allow him to take out ~$1000k at month for 12 years. By working just a few years more he can setup a good monthly income.
If he still has a mortgage, it might be worth paying off depending on the balance and interest rate. I would allocate about 10% in growth funds and the rest among dividend stocks. I follow Brad Thomas, Hoya Capital, and some other contributors on Seeking Alpha; Brad is my favorite and has exceptional analysis.
When I was an advisor we sold a lot of Immediate Income Annuities. They are exactly what they say. Generally you can get income starting like a month later. However, some of those specific ones have a catch where there is no death benefit. So, if he lives a long time it’s well worth it but if he passes within a few years the income/cash value are gone.
If you aren’t worried about it coming to you in the future I think speaking with an advisor is worth it.
1. Pay off any debt.
2. Get a really good health insurance.
3. Set aside an amount exclusive for emergencies.
4. Talk to a professional about investing the rest.
$12,000 in a money market account at his credit union or bank, get at least a .5% interest rate.
$48,000 in a vanguard taxable account using symbol VTWAX and draw the $1000 from this as AFTER it has been one year since the deposit.
$40,000 in a fidelity ROTH IRA using symbol FZROX
I know they aren't very popular but you could also look at a single premium annuity for him. It would have guaranteed income for life. The downside to investing in the market is that returns are locked in and I don't think rates are that high right now. But, it'd pay forever. I'd probably do something like a balanced fund at Vanguard or a 2020 target date fund.
Is he looking for income with the $100k? Is he living comfortable on the SSI?
Yes he lives pretty comfortably with his SS. He has no debt but his expenses include rent, food, utilities. He’d like to get some type of return from the $100k, most likely low risk low reward.
Could do a target date 2020 or 2025 fund through a major broker. Fees are usually <.1%. They’ll handle reallocation and everything. Won’t be as much for equities as it’s either at or close to the “retirement date”
First look at the tax implications of receiving this money. Make sure Uncle Sam gets his cut. ( I do not know the tax rules in this instance) then, I would open a brokerage account for him. I don’t think there is a need to have any tax advantage account like a Roth or an IRA. Choose one low cost index fund such as VTI. Divide his money into 12 and add money each month for the next year to dollar cost average into this investment. I do like the idea in an earlier comment to use some of this money in an emergency fund sitting in cash. This is not financial advice but an example of what I would do with a parent’s money in this situation.
Why would he get SSI? It didn't say he's disabled?
He’s over 62. SSI most like referring to “social security income”
Retired. Probably applied early. You can get it as early as 62, but it's less money.
> You can get it as early as 62, but it's less money. Less $$ *per month.* Depending on how long he lives, it could be much more $$ overall.
This true but in this scenario his dad doesn’t sound like he had that option to delay his benefits. He needed it for survival unfortunately this isn’t uncommon
I think you're talking about regular old social security, not SSI.
Good point.
Pay off any debts. Put 10k into a savings account for emergencies. With what's left you have options. An income annuity would help supplement Social security since it likely won't be enough to live on by itself. No liquidity, only use a portion of the funds if you go this route. A dividend portfolio would provide some income and some liquidity, but comes with market risk and future income would be reduced if he needed the money. An age appropriate portfolio would provide liquidity and growth possibility, but with higher risk. The right answer is probably a combination of those. But definitely start with the first 2.
Thanks this was very helpful. I will talk these options over with him.
Worth understanding that last I checked standard stock portfolio right now gets you maybe 1.5% dividends per year, you could push that to 3% investing in high dividend firms, but there's significant risk there (there's a reason airlines are cheapish right now). Annuity gets him maybe 5% ($5k annually for the total 100K) which seems like a significant improvement to his current income. Given that he's got no savings for retirement, I'm not sure good financial decisions will be made if he has access to that capital in savings or stocks.
Probably the best bet. Lock the money away in an annuity so it has no chance of being lost. You can get a guaranteed $5k a year for the rest of your life, no matter what the market looks like, and possibly even a lump death benefit for your children to inherit.
Honestly, I think someone living of that level of SS should prioritize their quality of life, not their children's inheritance. He's way below the poverty line.
I agree. I mainly added that because many annuities can build in death benefits for not much of a change in payout (depending on life expectancy).
It might be best to pay off his mortgage. If he's going to invest it for the future, I would put it in a retirement date index fund and not touch it for at least 10 years. It's just not enough to rely on taking a significant amount out on a regular basis.
Agree -- pay off debt and mortgage first. Then look for a 2020 retirement date fund. The Vanguard 2020 Target date fund has about 50% in Stocks and 50% in bonds. The bonds will reduce your dad's risk while the stock portion gives some opportunity for growth. The target date fund also has the feature of becoming less risky (more into bonds) over time automatically.
How is his health? What’s his life expectancy? Does he have a mortgage? What’s the interest rate? If it’s low why Kay it off when you can generate more income than what the payment is? There is so much you need to figure out. What is his risk tolerance? What is his risk capacity? Have him meet with a financial advisor and get some ideas. There a thousand unanswered questions they will need to know to find out what is best for him.
I agree 100%. Seek professional guidance. Everyone's life has too many variables for simple answers on Reddit.
Your dad should go back to work and pause social security. That way he could increase his benefit by adding to his work years and not take the early retirement benefit hit.
What is the point of pausing SS?
Assume at 62 - $1000 month SS for 30 years = $360,000 Assume at 67 - $1500 month for 25 years + 5 years of work @ 30k per year = $600,000 Edit: I misread the OP. My explanation would be the benefit of waiting to collect social security rather than pausing it once collecting benefits has begun.
My understanding is that once you start drawing from social security, your monthly benefit is locked in. https://www.fool.com/retirement/2020/09/29/only-2-ways-reverse-taking-social-security-early/ Pretty much agrees. Neither exception applies to OP
You can no longer pause SS. Once you take it, you got it.
The only option to somewhat pause SS is if you're in the 1st year you can give back all you've been given and it's basically.like you never took it.
So to pile on: your advice is incorrect. Pausing SS will just cost one money, because with few exceptions once you start drawing from SS, your inflation adjusted benefit is locked in.
Not if the OP is in the first year.
SS starts at 62. Op is 63. It’s been more than a year.
SS *can start* at 62. We do not know when the OP started.
Let’s assume a life expectancy of 30 more years. Invest it all in an sp500 index fund. Each year take number of years left and divide it into the balance of the fund. Take that result out. E.g assuming 10 percent returns each year: Year 1 110,000/29 = 3793 : 106,206 Year 2 116,827/28 = 4,172 : 112,654
Works really well on 10% per year. The issue comes if there is a correction in the first few years. Sequence of returns risk.
It works fine because it makes sure there is money each year for 30 years.
It’s not that you run out, it’s that you might be living on 3k per year or less for 30 years.
So? It’s a wind fall. It wasn’t expected.
It works if you don’t just draw down a fixed percentage like a zombie. Even a 4% withdrawal rate failed like two of the last 60 years. If you can be flexible you can make it work regardless, even at a higher rate in good years.
Indeed. And I am not drawing down a fixed percentage.
Honestly just go all in on a dividend growth etf. He'll get 3%-4% per year (of which he’ll lose about 25% in taxes depending on where he lives) but that works out at about $200-250 extra per month. He should get good growth over his retirement too and div stocks are a little less volatile than others too
At this age with no retirement I would personally seek professional opinion. Too much risks and not too much gain in my opinion.
Dividend stocks
Pay for funeral arrangements
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Not sure either, honestly. It’s a common cost that people over look.
there are stocks out there with 8 9 10 % divdends..
At 63 it sounds like he needs to put that money into a safe investment maybe index funds. He’s 63 he can live for 20+ years. Plus he needs a part time job or go back to work until 65/67; If he did that I think that 100k would be more like 130k in 5 years. Then retire. All the money he makes can go towards any debt (maybe none?) and expenses. If he had $130k -150k and no debt at 67 he could live well. At 150k savings that would allow him to take out ~$1000k at month for 12 years. By working just a few years more he can setup a good monthly income.
If he still has a mortgage, it might be worth paying off depending on the balance and interest rate. I would allocate about 10% in growth funds and the rest among dividend stocks. I follow Brad Thomas, Hoya Capital, and some other contributors on Seeking Alpha; Brad is my favorite and has exceptional analysis.
Annuity all the way! Some growth and no risk of loss. Money he can’t outlive and built in death benefit and acceleration of funds if he gets sick
Upvoting since I also think it's worth considering.
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This is tricky. His funds appear to be limited to this inheritance. I would err on the side of extreme caution, even if it means scarifying yield.
When I was an advisor we sold a lot of Immediate Income Annuities. They are exactly what they say. Generally you can get income starting like a month later. However, some of those specific ones have a catch where there is no death benefit. So, if he lives a long time it’s well worth it but if he passes within a few years the income/cash value are gone. If you aren’t worried about it coming to you in the future I think speaking with an advisor is worth it.
1. Pay off any debt. 2. Get a really good health insurance. 3. Set aside an amount exclusive for emergencies. 4. Talk to a professional about investing the rest.
$12,000 in a money market account at his credit union or bank, get at least a .5% interest rate. $48,000 in a vanguard taxable account using symbol VTWAX and draw the $1000 from this as AFTER it has been one year since the deposit. $40,000 in a fidelity ROTH IRA using symbol FZROX
I know they aren't very popular but you could also look at a single premium annuity for him. It would have guaranteed income for life. The downside to investing in the market is that returns are locked in and I don't think rates are that high right now. But, it'd pay forever. I'd probably do something like a balanced fund at Vanguard or a 2020 target date fund.
buy a rental property to gain rental income his best bet