Can I consider my time horizon to be long despite my age?

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harriettw
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Can I consider my time horizon to be long despite my age?

Post by harriettw »

I'm new to this forum, and although I'm not new to investment, so far I've made a hash of it. Now I'm trying to figure out how to do it right.

My situation: I retired 14 years ago. My daughter has moved in with me in order to attend graduate school. My income, from a defined benefits pension and Social Security, enables me to live comfortably, support my daughter, and pay her tuition. I have no debt. In other words, I don't need investment income.

My investments: When I retired I rolled my 305b over into an IRA. Except for very rare occasions I've ltaken no distributions except for the required annual ones. Initially I tried to manage it actively, buying and selling stocks, with the result that it is now worth less than when I retired. For quite a while now I've simply ignored it.

My goal: My daughter, who left the corporate world in order to pursue a career in mental health counseling, is unlikely to have the advantage of a defined benefits pension. I would like to do what I can to begin work on a nest egg for her, and also pursuade her to combine her various IRA's and 401b's (which she, like her mother, ignores) and invest them sensibly.

Because I don't want to spend the time and don't have the aptitude for money management, I'm drawn to the “lazy” portfolios that I've been reading about. I think I might go with a simple one of total stock market VTSMX, total international stock VTIAX, and either total bond market VBTLX or a TIPS fund VIPSX. What I'm tearing my hair over is asset allocation, which everyone seems to agree is of vital importance.

Although my age (77) would dictate a heavy weighting in bonds, it seems to me that, because of my goal, I can consider my time horizon to be the rest of my life and beyond, and invest less conservatively. Does this make sense?

Would 70/30 be a reasonable stock/bond allocation? What other funds could I add to the mix to increase diversification without overweighting anything?

Thanks in advance for your help.
Harriett
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Imperabo
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Post by Imperabo »

I think so. If your needs are met by SS and your pension, then I think it's completely appropriate to view your investments from the risk/reward needs of your daughter.

Rules such as "age in bonds" are designed to give simple guidelines for majority of cases. You shouldn't feel constrained by them.
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bob90245
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Post by bob90245 »

For someone in your situation (trying to get it right, wants to keep it simple), go with a moderately conservative all-in-one balanced fund, target retirement fund or life cycle fund with no more than 50% in stocks.

If you're not sure which one to choose, I would recommend Vanguard Wellesley Income Fund (VWINX).
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
YDNAL
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Re: Can I consider my time horizon to be long despite my age

Post by YDNAL »

harriettw wrote:Because I don't want to spend the time and don't have the aptitude for money management, I'm drawn to the “lazy” portfolios that I've been reading about. I think I might go with a simple one of total stock market VTSMX, total international stock VTIAX, and either total bond market VBTLX or a TIPS fund VIPSX. What I'm tearing my hair over is asset allocation, which everyone seems to agree is of vital importance.

Although my age (77) would dictate a heavy weighting in bonds, it seems to me that, because of my goal, I can consider my time horizon to be the rest of my life and beyond, and invest less conservatively. Does this make sense?

Would 70/30 be a reasonable stock/bond allocation? What other funds could I add to the mix to increase diversification without overweighting anything?

Thanks in advance for your help.
Harriett
Harriett,

Yes, if you invest for others you should have THEIR timeframe in mind as well. That said, invest to your willingness for risk (ability and need have been discussed by you).

I agree with Bob and would take the middle of the road (50/50) keeping Equities at 50% or less.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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archbish99
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Post by archbish99 »

As others have said -- what you're really doing here is building a retirement account for your daughter. Pick a Target Retirement fund based on her age, and let it go. If you want to build your own portfolio, then use her age in bonds as the guideline.

Minus the question of estate taxes (and if you have or expect to have enough that those will be an issue, start putting your allowed $23k/year into a trust with her as beneficiary), I'd suggest approaching this as being an investment adviser on her accounts.
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Trader007
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Post by Trader007 »

The stock market will likely go down for several years. 5-10 at least.
According to cycles. Fits well with fundamentals i would say.

So picking the right stocks would be difficult.
dharrythomas
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Post by dharrythomas »

I think your plan is reasonable. I'd probably shave a little off the stocks. I think the Wellington or STAR are reasonable under your circumstances.

If you are the only retirement provision that your daughter will make and that's what you want to do with your money, the RMDs are going significantly reduce what you're able to keep.

While I appreciate what you're doing for your daughter, she should be under no illusions that there will definately be alot of money in that account when you pass away (which God willing won't be for many more years).
:)
Good Luck

Harry
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harriettw
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Post by harriettw »

Thank you all very much. I've pondered your suggestions, and have decided to go with a 50/50 allocation. I'm also considering opening a taxable account with my RMD's.

I've looked at a lot of lazy portfolios, and think that I may base my allocation on David Swensen's model.

Thanks again.

Harriett
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Jay69
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Post by Jay69 »

Without knowing all the information would it be a good idea to convert as much as possible in the OP's lower tax bracket if it exist to a Roth every year?

Less taxes for the daughter depending on her tax bracket?

Does not an inherited IRA have some unique tax implications?

Not sure myself, just thinking out loud.
"Out of clutter, find simplicity” Albert Einstein
Topic Author
harriettw
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Post by harriettw »

I'm starting to think about converting my traditional IRA to a Roth. I'm thinking that now might be a good time to do it. My daughter quit her job and moved in with me last December, so I can file as unmarried head of household, claim her as a dependent, and deduct her tuition, which I believe you can do even if you take the standard deduction. The same amount as before is being deducted from my pension, but I think my taxes will be lower, so maybe the amount being deducted will pay for the conversion, especially if I don't do it all at once.

I need to get a CPA to figure out how much I can convert each year without moving into a higher tax bracket. I won't know whether or not this is a good idea until I do that.

Harriett
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DiscoBunny1979
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Re: Can I consider my time horizon to be long despite my age

Post by DiscoBunny1979 »

harriettw wrote:
My situation: I retired 14 years ago. My daughter has moved in with me in order to attend graduate school. My income, from a defined benefits pension and Social Security, enables me to live comfortably, support my daughter, and pay her tuition. I have no debt. In other words, I don't need investment income.
--------

Since this board gives us the ability to talk opening about some personal matters and that you've brought up this subject, I'm going to say a few things. While I find it alright for a parent to pay for tuition for the first few years of college . . . . I find it offensive for a parent to pay for tuition for graduate school. Why?

While the OP might be able to afford the tuition, these beginning and middle years of retirement is just that. The OP needs to have all of his money working for him not someone else. Why can't she take out a loan and learn the value in paying for something important herself? There is a lesson to be learned from earning money and paying for it yourself - the value of not only money - but the value in what it buys. If you pay for all the tuition, I certainly hope she is capable of managing her own money, and doesn't depend on you for everything else. Are you giving her an allowance? That would be a slippery slope.

I recently had the same thing happen with a friend of mine. She allowed her Dad to pay all of her higher education costs - the tuition AND mortgage for all the years of college until she graduated with her PhD. The problem . . . she decided she wanted to take her time and it took years . . . more years than the average to obtain that PhD and therefore the costs exceeded $150,000. And the truth - by the time she obtained the degree, she was too old and overweight to be considered seriously for jobs within her field. She had to settle for the first option that came along and is very unhappy, being paid far less than what you would expect someone with PhD to be paid. On top of that, women are notriously underpaid than men . . . I'd be concerned that the field of interest (social work) does not pay much, especially teaching, and therefore don't expect there to be much return on investment with a PhD unless the student is a youngster.

Excuse my ranting. . .but the OP is on here expressing concern about an allocation of 70/30 stocks and bonds. That's flipped. When someone is in their 70's it should be something like 30/70 or 40/60, unless there is a definate need to risk more. Don't give your extra money away. It's cushion, that will allow you to not take any risks at all. If your pension and SS cover all costs to live comfortably, I wouldn't even consider stocks. A Ladder of CD or bonds would be nice.

And against the other folks advice, you shouldn't be planning to invest for anyone but yourself. You've got 20+ years left to live (unless you've been given a 60 day notice by your doctor). Those are a lot of years and while it might make you feel good to help someone with the cash . . . I'd be more cautious than helpful.
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joe8d
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Post by joe8d »

I think so. If your needs are met by SS and your pension, then I think it's completely appropriate to view your investments from the risk/reward needs of your daughter.

Rules such as "age in bonds" are designed to give simple guidelines for majority of cases. You shouldn't feel constrained by them.
I agree.
All the Best, | Joe
pkcrafter
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Post by pkcrafter »

You did not give the approximate size of assets, but as Discobunny points out, you may need a lot of cash for some purpose 10 years from now. For that reason, you need to have a limit of how much money you are willing to spend on your daughter. You do need some cushion in case of large unexpected payouts. Since you do not have income, your assets are irreplaceable while your daughter will have large earning power.

So, be sure to keep a decent reserve amount for yourself, and I would second the idea of a target retirement fund with an AA of about 50/50.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Peter Foley
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Post by Peter Foley »

I like to add my voice of approval for what your doing. There is more in life than money and if your needs are met, helping your daughter is a nice thing to do. I think in your situation a 50/50 approach is fine. It allows for more growth than the age in bonds approach, and yet it still conservative enough so that you could tap those resources if need be.
You are on the right track in your overall approach to life and finances.
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Jay69
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Post by Jay69 »

If your pension and SS is more than enough I dont see anything wrong with 50/50.

As a side note, my outlaws have a small trust set aside for the kids and that is at a 40bond/60stock mix. They live a simple life and live very well below their mean off the pension and SS. Heck they cant seem to spend what they get now.
"Out of clutter, find simplicity” Albert Einstein
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Steelersfan
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Post by Steelersfan »

I'm in a similar situation and I have a 50/50 stock/bond allocation that I don't intend to change for a very long time, maybe never.

You're doing a very good thing for your daughter. Congrats.
bombcar
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Post by bombcar »

If your daughter and your wife don't want to bother learning about finances, you may want to look into trusts so that they don't have to make bad decisions later.
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