Parents retiring - help with planning/investing

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Topic Author
mdbravelion
Posts: 20
Joined: Fri May 14, 2021 12:02 pm

Parents retiring - help with planning/investing

Post by mdbravelion »

Hi All,

Parents just retired and sold a business which they have owned for decades. Ages 64(dad) and 59(mom).

Ages - 64 and 59
Debts - 0
Primary home - paid off - no mortgage - valued at ~375k (no desire to move or sell)
Required income - $2500-3000 per month based on average spending

Cash from sale of business/savings - $550k (100% parked at Ally for now generating .5% interest)
Dad IRA - $10k - VTI
Dad Roth- $8k -VTI
Dad investment account/taxable - $108k - VTI
Mom IRA- $8k - VTI
Healthcare costs - 0 per month; have medicaid through state (NJ)

They also own a rental valued at $250k which is fully paid off and generating ~$1200 per month net after expenses(taxes, maintenance, vacancy, etc).

Aside from the rental, there is a shortfall of 1500-1800 per month that they require to live on.

Dad is eligible for SSI which would pay out $907 today, $1089 at 66.5, and $1394 at 70. This is the monthly SSI amount. Mom would not be eligible for SSI until 62(about 2.5 years away). Mom would be eligible for SSI amounts of $599 at 62, $851 at 67, and $1055 at 70.

Now that there is no business, they have $550k in cash. Questions:

1. Should dad start collecting SSI right away? Let's assume planning until the age of 95.
2. What percentage of the $550k should be put away for emergency fund?
3. How much of the $550k should be invested in the market? What allocation? Lump sum or dollar cost averaging?
4. With SSI + the rental income, they would have roughly a $400 deficit at the minimum.
5. What would be an optimal strategy to draw-down versus invest?
6. When will mom's SSI come into play? When should she start withdrawing?

Any and all advice greatly appreciated!
BarbBrooklyn
Posts: 1717
Joined: Fri Aug 24, 2018 9:33 am
Location: NYC

Re: Parents retiring - help with planning/investing

Post by BarbBrooklyn »

For the Social Security part of your question, this is the best calculator I've found.

https://opensocialsecurity.com/

Developed by Mike Piper.

Also, do you mean SSI? That's Social Security DISABILITY Income.
miket29
Posts: 1065
Joined: Tue Jun 20, 2017 9:07 pm

Re: Parents retiring - help with planning/investing

Post by miket29 »

Looking at the high side of the expense estimate, they need $1800 after the investment property. If dad starts collecting Social Security now they need $900/mos or about $11000/year. With assets of $550K and using a 4% safe withdrawal rate they can take $22K/year from the savings. So on the surface they seem ok, but it seems somewhat precarious.

For one, what happens when the rental needs repairs like a new roof? That can be tens of thousands. Also the 4% rate is from an earlier era with healthier bond returns. 3% might be a better rate today, maybe even less.

I suggest building a few spreadsheets. See what happens if they draw down on savings and delay Social Security for a while. It would be 6 spreadsheets total. My gut feeling is they're better off drawing down savings now because if they delay Social Security for a few years then it can cover their entire budget (and is inflation adjusted), but that's just a guess. Work out the numbers and you'll know. Also work a spreadsheet or two that shows what happens when one parent passes away; will there be enough for the survivor?

I recently watched a course you might be interested in that goes over exactly this planning. It is https://www.thegreatcourses.com/courses ... retirement Too expensive to buy (although courses go on sale once each year) but worth watching if you can borrow it from a library like I did. The presenter also has a book that she said in the video covers the same material, might be worth buying if you can't find the course at a library.
02nz
Posts: 10508
Joined: Wed Feb 21, 2018 2:17 pm

Re: Parents retiring - help with planning/investing

Post by 02nz »

My ballpark guesses would be that dad should wait until age 70 to collect, while mom should collect at age 62. But as another posted suggested, run that through opensocialsecurity.

With savings of around $684K, a 4% withdrawal rate of $27K per year should be sustainable for the rest of their lives. That already covers the shortfall between the rental income and their expenses, and that's even before SS. They should withdraw their modest tax-deferred balances in the time before Social Security starts, as that will tend to minimize taxes overall.

I would invest the taxable lump sum in a Vanguard LifeStrategy Fund, probably the 40/60 LifeStrategy Conservative Growth, except maybe for a $25K-$50K emergency fund.
Topic Author
mdbravelion
Posts: 20
Joined: Fri May 14, 2021 12:02 pm

Re: Parents retiring - help with planning/investing

Post by mdbravelion »

Thank you everyone with the responses so far; anybody else want to chime in? The information on this forum is invaluable.
billfromct
Posts: 2057
Joined: Tue Dec 03, 2013 8:05 am

Re: Parents retiring - help with planning/investing

Post by billfromct »

You say your parents “have Medicaid through state (NJ)”

I believe Medicaid is health care for low income people with little income or assets.

Based on the information you provided, their assets (house, rental property, sale of business, investments, retirement accounts, etc) appear to be about $1.3M.

I don’t know if NJ has asset maximums to get Medicaid, but you may want to help them check if there is an asset maximum to get NJ Medicaid so they aren’t in violation of any NJ rules.

bill
Topic Author
mdbravelion
Posts: 20
Joined: Fri May 14, 2021 12:02 pm

Re: Parents retiring - help with planning/investing

Post by mdbravelion »

NJ Medicaid is based on monthly income only. Their monthly income is very low as stated.
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