Helping Parents Invest

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Topic Author
lection
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Helping Parents Invest

Post by lection »

My parents currently have the majority of their financial assets being managed by Wells Fargo which is charging a 1% AUM and also has some of their money in relatively expensive funds (~1% expense ratios in some cases). I'm planning to pull their money out of Wells Fargo and stick in a Vanguard account and help them manage it. Wanted to share my overall plan for them here and was hoping to get some advice on any potential issues / pitfalls.

Here's personal their details:
- Mom age 61
- Dad age 76
- They retired as small-business owners about 5 years ago. Mom worked part-time for a few years and then collected unemployment benefits when COVID hit. Dad just recently started a part time job to keep busy (not including income below, since only about $8-10k per year and he may not keep it past near-term). Both are healthy.

Annual Income:
- Dad's social security: $26k
- Mom's social security: TBD

Annual Expenses:
- Upwards of $50k (this is what financial adviser was targeting, but may be more like $40k)

Assets:
- Mom IRA: $315k
- Dad IRA: $193k
- Taxable Brokerage: $184k
- Checkings / Savings: $113k
- Home (no mortgage): $400k
- Undeveloped land: $200k (low / conservative estimate - parents claim it's worth $340k based upon tax assessments
- Whole Life insurance policies: three different policies, two of which are being paid into (~$1k total per year). Unknown cash value.

Debt: none

Tax Filing Status: MFJ

Plan:
1. Move financial assets out of Wells Fargo and into Vanguard

2. Keep ~$50k as an emergency fund in Settlement Fund / money market / treasuries.

3. Invest remaining assets in an index fund portfolio that is approximately 50% equities and 50% fixed income (Wells currently has them in 55% equities):
a. This is easy enough to do with IRAs.
b. Harder to do with the taxable account. I want to line up the assets of what I most want to liquidate and then see what can be sold for minimal gains and/or offset by losses. May need to do this over a number of years. They should have some room in the 0% tax bracket for capital gains, but want to be careful about tripping up income limits for (i) Mom's Obamacare, (ii) taxable social security income, (iii) other (?).
c. Also thinking about trying to put more equities in the taxable account and more fixed income in the IRAs (Wells did not do this). But, may not be worth the effort given their tax bracket.[/list]

4. Figure out Mom's social security strategy. I believe she may have a fairly low benefit based upon work history. In which case, especially given their age gap, it might make sense to collect early-ish given she will eventually collect dad's higher amount when he passes. I need to pull her social security info and run the numbers.

5. Probably try to liquidate both the land and whole life policies (after finding out more info on both).

Any input or advice on this plan would be appreciated.
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TinyHouse
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Re: Helping Parents Invest

Post by TinyHouse »

Do they want your help? Are they comfortable with that? That’s the first question…
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retired@50
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Re: Helping Parents Invest

Post by retired@50 »

lection wrote: Sat Mar 04, 2023 4:59 pm My parents currently have the majority of their financial assets being managed by Wells Fargo which is charging a 1% AUM and also has some of their money in relatively expensive funds (~1% expense ratios in some cases).
...
Annual Income:
- Dad's social security: $26k
Annual Expenses:
- Upwards of $50k (this is what financial adviser was targeting, but may be more like $40k)
...
Any input or advice on this plan would be appreciated.
Congratulations on your first post.

Getting away from the 2% fees (AUM & ER) will be a pretty big benefit.

For Mom's Social Security see this site: https://opensocialsecurity.com/
Managing that benefit properly could be important, especially if she lives another 30+ years.

So, are the annual expenses of $40 or $50K above and beyond Dad's Social Security income? Or do they only need to take around $25k from their investments to meet expenses, and use Dad's 26K of SS for the rest?

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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windaar
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Re: Helping Parents Invest

Post by windaar »

TinyHouse wrote: Sat Mar 04, 2023 5:06 pm Do they want your help? Are they comfortable with that? That’s the first question…
If they haven't specifically asked for your help I'd mind my own business. I'm not ever going to be interested any financial advice from my kids
Nobody knows nothing.
Topic Author
lection
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Re: Helping Parents Invest

Post by lection »

retired@50 wrote: Sat Mar 04, 2023 5:21 pm For Mom's Social Security see this site: https://opensocialsecurity.com/
Managing that benefit properly could be important, especially if she lives another 30+ years.

So, are the annual expenses of $40 or $50K above and beyond Dad's Social Security income? Or do they only need to take around $25k from their investments to meet expenses, and use Dad's 26K of SS for the rest?
Thanks for the social security link. Will check that out.

To clarify, their annual expenses are about $40k to $50k, total. So they need another ~$25k from their investments annually after social security income.
Topic Author
lection
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Re: Helping Parents Invest

Post by lection »

windaar wrote: Sat Mar 04, 2023 7:58 pm
TinyHouse wrote: Sat Mar 04, 2023 5:06 pm Do they want your help? Are they comfortable with that? That’s the first question…
If they haven't specifically asked for your help I'd mind my own business. I'm not ever going to be interested any financial advice from my kids
They do want and appreciate our help / financial advice. Especially after we explained the annual cost of Wells Fargo active management AUM fee and the underlying expense ratios being paid.
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retired@50
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Re: Helping Parents Invest

Post by retired@50 »

lection wrote: Sun Mar 05, 2023 7:38 am
retired@50 wrote: Sat Mar 04, 2023 5:21 pm For Mom's Social Security see this site: https://opensocialsecurity.com/
Managing that benefit properly could be important, especially if she lives another 30+ years.

So, are the annual expenses of $40 or $50K above and beyond Dad's Social Security income? Or do they only need to take around $25k from their investments to meet expenses, and use Dad's 26K of SS for the rest?
Thanks for the social security link. Will check that out.

To clarify, their annual expenses are about $40k to $50k, total. So they need another ~$25k from their investments annually after social security income.
If all they need from the portfolio is $25k - and they currently hold around $805k in their accounts (excluding land and house) they should be okay assuming you get them away from the high fee arrangement. Drawing $25k from $805k is a 3.1% withdrawal rate. If they have to give $10k in fees to Wells via AUM or high ERs that changes the picture a bit (i.e. 4.3% withdrawal rate).

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Stinky
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Re: Helping Parents Invest

Post by Stinky »

lection wrote: Sat Mar 04, 2023 4:59 pm Whole Life insurance policies: three different policies, two of which are being paid into (~$1k total per year). Unknown cash value.
Why don’t you start off by getting the face amount, most recent cash value, and annual premium for each of the three policies.

If the policies are relatively small, it’s likely best just to surrender them. But if larger, they might be considered as a part of their fixed income allocation, as the policies might be earning somewhere in the range of 4% on the cash value.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Rocky Mtn Man
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Re: Helping Parents Invest

Post by Rocky Mtn Man »

windaar wrote: Sat Mar 04, 2023 7:58 pm
TinyHouse wrote: Sat Mar 04, 2023 5:06 pm Do they want your help? Are they comfortable with that? That’s the first question…
If they haven't specifically asked for your help I'd mind my own business. I'm not ever going to be interested any financial advice from my kids
Even when you're in your 80's an have mild dementia and are having slowing executive function switching speed? Scammers will love you!
Jack FFR1846
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Re: Helping Parents Invest

Post by Jack FFR1846 »

Pull over to Vanguard. Make the IRA bond heavy. Do they have Roths? If a part time job hits the Roth max in income, that entire amount can go into a Roth for both of them.

In taxable, sure....sell with an eye on ACA to keep income low enough.

Find out more about the whole life policies and consider cashing out. Get in force illustrations.

Why do they have land? Sell that.

Use opensocialsecurity to see when she should start collecting. With the age differences, I'd guess at 62, but do the estimate. Click the box to estimate when SS trust fund goes to zero and benefits drop.
Bogle: Smart Beta is stupid
Topic Author
lection
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Re: Helping Parents Invest

Post by lection »

Stinky wrote: Sun Mar 05, 2023 9:18 am Why don’t you start off by getting the face amount, most recent cash value, and annual premium for each of the three policies.

If the policies are relatively small, it’s likely best just to surrender them. But if larger, they might be considered as a part of their fixed income allocation, as the policies might be earning somewhere in the range of 4% on the cash value.
Thank you for the input, I'll start by trying to get this information.
Jack FFR1846 wrote: Sun Mar 05, 2023 10:16 am Pull over to Vanguard. Make the IRA bond heavy. Do they have Roths? If a part time job hits the Roth max in income, that entire amount can go into a Roth for both of them.
They don't have Roths, but we should set one up since there is some earned income, that's a great idea! Only downside I can think of is the account needs to be open for 5 years before tax-free withdrawals, but that shouldn't be an issue given their other assets.
Jack FFR1846 wrote: Sun Mar 05, 2023 10:16 am Find out more about the whole life policies and consider cashing out. Get in force illustrations.
Will add force illustrations to the list of whole life policy requests.
Jack FFR1846 wrote: Sun Mar 05, 2023 10:16 am Why do they have land? Sell that.
Great question lol. That's the plan.
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Eagle33
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Re: Helping Parents Invest

Post by Eagle33 »

lection wrote: Mon Mar 06, 2023 5:08 pm They don't have Roths, but we should set one up since there is some earned income, that's a great idea! Only downside I can think of is the account needs to be open for 5 years before tax-free withdrawals, but that shouldn't be an issue given their other assets.
Because they both are over 59.5 only the gains in the Roth IRA are subject to the 5-year rule. All the contributions and conversion amounts will be available immediately tax/penalty free. The order of withdrawals are first their contributions total, then their conversions total, then the earnings (gains inside the Roth) only after all the contributions & conversion amounts are withdrawn.
Topic Author
lection
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Re: Helping Parents Invest

Post by lection »

Upon further thought, instead of completely pulling my parents' money out of Wells Fargo, I think I will just have them convert the actively managed accounts to a self-directed WellsTrade accounts. Seems like it will just be easier to leave everything at Wells since they are used to banking there (and have checking accounts) and do not need to worry about setting up new accounts, transferring assets, etc.

It looks like WellsTrade is basically free for most purposes. There is a $35 charge to purchase Vanguard mutual funds, however ETF trades are free. So I can just put them into ETFs instead of mutual funds. I'm thinking I would just buy two ETFs: VT and BNDW (unless I decide to weight more heavily towards US, in which case I can buy the 4 constituent parts).

Anyone have any WellsTrade or ETF as retirement investment horror stories, or other words of caution / encouragement I should be aware of?
the_wiki
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Re: Helping Parents Invest

Post by the_wiki »

You could just see if they would move it to the Automated Robo Advisor at Wells Fargo. They are 0.35% fee (.25% if you have certain checking accounts) and they use low cost index funds, so the fee should be .4-.5% tops rather than 1.5-2% with the human advisor, which will save a bundle.

https://www.wellsfargoadvisors.com/serv ... vestor.htm

Moving them to self managed sounds good on paper, but then you are going to be blamed if the returns are poor, and you are setting them (or you) up for more work or stress managing it.
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