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Investing my mom's nest egg
April 1, 2005 8:41 AM   Subscribe

Help me invest my 80 year old Mom's money.

My Mom has a nest egg that she wants to invest and from that investment, she wants to receive income in the form of a monthly check to supplement her social security. She was referred by friends to a financial advisor who subsequently charged her an excessive amount in commissions to sell her stock portfolio and then wanted to put her into a few load funds that he said would generate a monthly income for her. The funds seemed risky to me for an 80 year old woman and I also didn't want her to lose 5% of her principal on a load. So advisor is now gone and money is now sitting in a Schwab account.

I realize she should have an advisor but I unfortunately live outside of the US and it's difficult for me to find and screen someone for her. So what I'm looking to do is put her money into a few safe funds that will generate a modest income for her (5-6%) and automatically send her a monthly check. Can someone give me a bit of advice here? What type of funds should I be researching? And will I be able to arrange a regular check or will she need to draw it out every month?

Thanks.
posted by gfrobe to Work & Money (14 answers total)
 
try dividend-paying utility stocks? or an annuity? might help if we knew generally how much you had to invest.

does she own property? you could look into a reverse mortgage?
posted by vaportrail at 8:47 AM on April 1, 2005


I'm selling these fine leather jackets....


in all seriousness, try calling some of the big names and asking what they can do. I'm sure there are people in similar situations, so there's bound to be a fund or something that does just what you want.
posted by cosmicbandito at 9:15 AM on April 1, 2005


You don't mention the amount of money at stake here, but the standard way of approaching these things is tolerance for risk versus safety. Unless she has a large amount of discretionary funds, it seems to me that what an 80 year old person would want would be absolute safety and that comes through investment in laddered Treasury bills. You could also consider a rock solid annuity.

My mom has got 5 years worth of laddered T-bills and the rest of her money in a portfolio that is managed (a 1% charge per year), but emphasizes safety, which implies low levels of growth/income.
posted by jasper411 at 9:23 AM on April 1, 2005


Is there a senior center near her, or a department of senior services? Perhaps they can recommend a financial advisor who specializes in seniors' finances.
posted by Kellydamnit at 9:24 AM on April 1, 2005


One word

OIL.

My mom's been on this energy buying kick and made 10% return this quarter.
posted by delmoi at 9:26 AM on April 1, 2005


In today's market, earning 5-6% safely probably means tying up the money for a good amount of time. You can get that on a 5-year CD, for instance, but you can't get income out of it. A lifetime $100,000 annuity will get you about $850 a month, which starts being a good return only if you live more than ten more years, and of course the money is tied up such that you can only get it out in monthly drips. Frankly, I'd look at an Emigrant Direct or Capital One savings account (currently both are above 3%), that way she can draw out whenever she needs (although be aware that only the first $100,000 will be FDIC insured, so if she has more perhaps she'll want to spread it out over multiple banks).
posted by kindall at 9:34 AM on April 1, 2005


Thanks for the suggestions. The amount is about 60k. She does own a condo but doesn't have much equity (just bought it). I'll look into an annuity (as I don't know much about them) and T-Bills. Oil sounds risky to be honest.

I thought about the Emigrant savings account when it was posted on this board a few weeks ago. However, my mom's advisor was telling her she could get around 8 or 9% so I thought going for 3.5% was maybe a bit too conservative. But perhaps I was wrong on that. At least it would be safe.
posted by gfrobe at 10:30 AM on April 1, 2005


You're a good child, getting her money out of the clutches of the scummy advisor.

Vanguard is a good safe bet for basic US investments. They offer some inexpensive one time financial planning services. If you're mom has $250,000 or more it's free, otherwise it's a modest one time fee. They'll create a plan for her and then she or you can implement it directly. You won't find a cheaper option, although this probably only makes sense if she has at least $100,000 to invest.

Not to be harsh, but 80 years is pretty far on the end of the actuarial tables. I'd expect to put the money in some basic income generating funds. The main advice I'd look for is estate planning.
posted by Nelson at 10:33 AM on April 1, 2005


Also, while Schwab is not as cheap as Vanguard, they are pretty low-fee and pretty much straight-shooters. I would not hesitate to call them up and ask about getting your mom into a laddered bond or CD portfolio or an annuity. They have annuity products.

The main thing with annuities is to watch the costs. There are some very high-fee products out there -- be careful.
posted by Mid at 11:14 AM on April 1, 2005


Annuities are sold dishonestly, but do not deserve their poor reputation.

Call your local discount insurance company (or Fidelity Investments), tell them you want a life annuity with the maximum guarantee period (this will probably be her life expectancy, say, 7 years or so).

This will give you a baseline of what the largest guaranteed payment she can get is. The guarantee period keeps the insurance co from making out like bandits if she dies tomorrow, because her beneficiaries will receive her payments until her life expectancy ends.

Since my explanation sucked, I'll try this: A life annuity with guarantee period will pay the same amount monthly for the remainder of her life or the guarantee period, whichever is longer.

If this amount is adequate for her, this is probably the best route as the "safety" of the payment is excellent (most annuities are escrowed, insured, regulated, reinsured, et cetera-- just make sure Hancock, GE, or an equivalent company is behind it).

If the annuity payment is insufficient, then the discussion gets more complicated. Feel free to email me if you'd like. I used to work tangentially to that part of the business.
posted by trharlan at 11:20 AM on April 1, 2005


I would ask Brotha Clark Howard.
posted by spilon at 12:19 PM on April 1, 2005


Not to be harsh, but 80 years is pretty far on the end of the actuarial tables. I'd expect to put the money in some basic income generating funds. The main advice I'd look for is estate planning.

Today, my estate planning teacher actually said that you should not plan for the rest of a person's life based on averages. So invest away, and then urge your mom to have her will and/or trust documents checked out to make sure they are still her wishes.
posted by MrZero at 6:15 PM on April 1, 2005


At her age, probably something in an annuity or other life insurance product. Time to get out of the market and guarantee your principal. Look into a single-premium "Estate Maximizer" (I don't remember who offers that, but we used to do a lot of them and they allow some taking of principal/interest as well as a death benefit) and if you do go for an annuity, don't look solely at the rate. Look at whether she can touch the principal. Also look at the salesperson. If they don't look like they understand your situation, politely leave. If you throw a rock, you can hit 20 annuities reps, so wait till you find one that makes you comfortable.

I wish I could tell you more, but my job still hasn't let me get licensed.
posted by Eideteker at 10:07 PM on April 1, 2005


As a rule of thumb, you should plan on being able to withdraw something like 4 to 5 percent of the principal each year without reducing that principal (although you will probably lose ground to inflation, eventually). So $60K could (in theory) be set up to yield about $3K per year in income, forever.

To be blunt, $60K isn't enough to interest anyone to give your mother anything free except very generalized advice (computer printouts, standard portfolio), except for dishonest individuals (like the one you got rid of). The suggestion to use Vanguard, for a fee, isn't a bad one, though $1,000 (assuming you move the $60K to Vanguard; $1,500 otherwise) isn't cheap.
posted by WestCoaster at 2:44 PM on April 8, 2005


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