Where should a senior safely park $300k for heirs
- Backroads4Me
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Where should a senior safely park $300k for heirs
My dad has finally asked for my advice on where to put his cash and I need your help to get this right. I'm pretty comfortable with investing and I've been successful managing my own money, but I really haven't had a need to become fluent in fixed income options yet.
He is a healthy 81 and mom is 80 and bed ridden after a stroke last year. Dad lost some money in the start market 40 years ago and has literally refused to have anything to do with it since then. He got one of the last great pensions and between that and their social security they have more income than they need. No debt at all. His money has been sitting in a local credit union savings account growing with his contributions but at near zero interest for years despite me explaining high yield savings accounts etc. For whatever reason, he's now heard enough about other people making money on their savings and he's ready to do something with it. He is very unlikely to ever need this money. The goal is only to put it somewhere "safe" so it will grow a little and not lose out to inflation until it's passed on to his kids and grandchildren. He is not interested in gifting the money early. I'll be helping him with whatever he does but less maintenance is a plus. Another stretch plus is that he would love to not pay taxes on it and for the kids to benefit from a step up in basis.
With that said, here are some of the options I am considering, and I would appreciate all advice.
Opening an account at Fidelity:
-Everything in a money market fund:
SPAXX : Govt MMF
FDLXX : Fidelity Treasury Only MMF
FZCXX : Fidelity Government MMF Premium Class
-Treasury Bills on Auto roll
-Brokered 5-year CD, possibly a ladder
Maybe a Treasury Direct account for I-bonds to be gifted, but this will require more conversations with him.
VMFXX is on the table as well, but I would slightly prefer to stay with Fidelity (I am all Vanguard, but I have all my kids set up with Fidelity and think it's easier if he should ever want to be involved or even have me "show him around")
Thank you in advance for any help.
He is a healthy 81 and mom is 80 and bed ridden after a stroke last year. Dad lost some money in the start market 40 years ago and has literally refused to have anything to do with it since then. He got one of the last great pensions and between that and their social security they have more income than they need. No debt at all. His money has been sitting in a local credit union savings account growing with his contributions but at near zero interest for years despite me explaining high yield savings accounts etc. For whatever reason, he's now heard enough about other people making money on their savings and he's ready to do something with it. He is very unlikely to ever need this money. The goal is only to put it somewhere "safe" so it will grow a little and not lose out to inflation until it's passed on to his kids and grandchildren. He is not interested in gifting the money early. I'll be helping him with whatever he does but less maintenance is a plus. Another stretch plus is that he would love to not pay taxes on it and for the kids to benefit from a step up in basis.
With that said, here are some of the options I am considering, and I would appreciate all advice.
Opening an account at Fidelity:
-Everything in a money market fund:
SPAXX : Govt MMF
FDLXX : Fidelity Treasury Only MMF
FZCXX : Fidelity Government MMF Premium Class
-Treasury Bills on Auto roll
-Brokered 5-year CD, possibly a ladder
Maybe a Treasury Direct account for I-bonds to be gifted, but this will require more conversations with him.
VMFXX is on the table as well, but I would slightly prefer to stay with Fidelity (I am all Vanguard, but I have all my kids set up with Fidelity and think it's easier if he should ever want to be involved or even have me "show him around")
Thank you in advance for any help.
Re: Where should a senior safely park $300k for heirs
Any of those would be better than letting it sit in a low-interest CU account.
I would think that the easiest to explain would be a Treasury fund (like FDLXX): “Dad, 100% of the money is in US Treasuries, held by a separate custodian so even if (brokerage name) were to go bust the Treasury notes/bills are still there.”
I would think that the easiest to explain would be a Treasury fund (like FDLXX): “Dad, 100% of the money is in US Treasuries, held by a separate custodian so even if (brokerage name) were to go bust the Treasury notes/bills are still there.”
Last edited by David Jay on Tue Mar 21, 2023 1:28 pm, edited 1 time in total.
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- retired@50
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Re: Where should a senior safely park $300k for heirs
I'm not sure the above statement is reasonable if he won't consider the stock market.Backroads4Me wrote: ↑Tue Mar 21, 2023 1:17 pm ... Another stretch plus is that he would love to not pay taxes on it and for the kids to benefit from a step up in basis.
The added condition of not paying taxes and getting a step up in basis cries out for Berkshire Hathaway B shares, not that I'd recommend that.
He could avoid paying taxes by using US Savings bonds in the heir's names.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Where should a senior safely park $300k for heirs
Laddered CDs or Treasurys are a good idea, given the constraints he’s imposed
Even if it’s unlikely that your parents will need the money, a ladder will give them access to a portion of it without interest or value penalties.
Or put some in a money market and some in a 5-year CD or Treasury note.
A money market fund for everything is overally conservative.
Even if it’s unlikely that your parents will need the money, a ladder will give them access to a portion of it without interest or value penalties.
Or put some in a money market and some in a 5-year CD or Treasury note.
A money market fund for everything is overally conservative.
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- Backroads4Me
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Re: Where should a senior safely park $300k for heirs
I agree with this. While he hasn't said it, I can't help but think some of the impetus for taking action now is hearing about bank failures and FDIC insurance on the news.
- Backroads4Me
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Re: Where should a senior safely park $300k for heirs
Can you convince him to put 10%-20% into the US economy via the S&P 500 index?
Sell it like a bet on the US staying a superpower.
that slight little bit extra would be the inflation hedge they/you are seeking.
Sell it like a bet on the US staying a superpower.
that slight little bit extra would be the inflation hedge they/you are seeking.
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- Backroads4Me
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Re: Where should a senior safely park $300k for heirs
I plan on striking while the iron is hot and having that and other conversations, but I'm not counting on it and I don't plan to push too hard. Just mention it and see how it's received. He's 81 and despite avoiding the markets he's done just fine for himself. I'm not wanting to be the one that talks him into something at this point in the game where he may lose some of it.
Re: Where should a senior safely park $300k for heirs
You are giving yourself very good advice!Backroads4Me wrote: ↑Tue Mar 21, 2023 2:26 pm I plan on striking while the iron is hot and having that and other conversations, but I'm not counting on it and I don't plan to push too hard. Just mention it and see how it's received. He's 81 and despite avoiding the markets he's done just fine for himself. I'm not wanting to be the one that talks him into something at this point in the game where he may lose some of it.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Where should a senior safely park $300k for heirs
If he has already decided to give it away, why not give it away now? Don't have to worry about what to do with it if he doesn't have it anymore.
- CyclingDuo
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Re: Where should a senior safely park $300k for heirs
Glad he has been covered by the pension and SS.Backroads4Me wrote: ↑Tue Mar 21, 2023 1:17 pmHe is a healthy 81 and mom is 80 and bed ridden after a stroke last year. Dad lost some money in the start market 40 years ago and has literally refused to have anything to do with it since then.
Always curious about these stories of “losing money in the market 40 years ago and refusing to have anything to do with it since”. Was it a single stock? Or group of stocks? How did he avoid 40 years of investing with all of the news over the past 4 decades regarding investing?
Pretty amazing returns were missed from 1983 to 2023. Oh well, was just curious what it was that happened back in 1983 to keep him far and away from equity investing all these years…
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Re: Where should a senior safely park $300k for heirs
A ladder of individual TIPS is easy to construct and about as conservative as it gets for marketable securities. I helped my retired in-laws, who are very conservative, with constructing one recently and they found the concept easy to understand.
Treasury Savings Bonds (Series I) are also an option. Purchase is limited to 10k/year per person, but a simple Revocable Living Trust would allow another 10k/year. (They do not get step-up in basis, though.) I-Bonds are also a great source of cash for taxes on inflation-linked appreciation (OID) on a taxable TIPS ladder, if needed.
Post back with questions if interested.
Treasury Savings Bonds (Series I) are also an option. Purchase is limited to 10k/year per person, but a simple Revocable Living Trust would allow another 10k/year. (They do not get step-up in basis, though.) I-Bonds are also a great source of cash for taxes on inflation-linked appreciation (OID) on a taxable TIPS ladder, if needed.
Post back with questions if interested.
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Re: Where should a senior safely park $300k for heirs
With an upside-down yield curve you will be losing money in the short-term. The five-year Treasury bond is at 3.75% or so, while the six-month Treasury bill is at 5%.
I'd put $50k per month in a six-month T-bill at Treasury Direct, and keep rolling them over until they are inherited. Clean and simple, and 100% guaranteed.
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Re: Where should a senior safely park $300k for heirs
I think any of the options proposed above would be fine for the money.
A bigger concern is that they may need the money for themselves going forward. If your mom is bedridden, either she is being tended by her husband, or needs hired care. They may one or both need assisted living or nursing care. I hope they are willing to use the money for themselves, as required.
A bigger concern is that they may need the money for themselves going forward. If your mom is bedridden, either she is being tended by her husband, or needs hired care. They may one or both need assisted living or nursing care. I hope they are willing to use the money for themselves, as required.
Re: Where should a senior safely park $300k for heirs
One idea to have your dad take a BIT more risk:
Put the $300k in treasuries/CDs/iBonds or whatever that are very safe. Right now, you can get around 4% (I think), meaning this would throw off around $12k per year in interest.
Then see if he'd agree to dollar cost average the $12k interest (or a portion of the interest) as it is generated into VTI or VTSAX or whatever for his heirs. Explain the principal will remain safe (and/or grow with new additions by him if his income continues to outstrip his expenses, and/or by some portion of the interest), but the interest will be exposed to a little bit of risk, gradually, via dollar cost averaging, for hopefully greater long term returns (and stepped up basis upon inheritance).
That's what I'd try to do, at least. Protect the principal safely as is his first priority, but see if you could use the interest that generates to build/DCA into something for better returns.
Put the $300k in treasuries/CDs/iBonds or whatever that are very safe. Right now, you can get around 4% (I think), meaning this would throw off around $12k per year in interest.
Then see if he'd agree to dollar cost average the $12k interest (or a portion of the interest) as it is generated into VTI or VTSAX or whatever for his heirs. Explain the principal will remain safe (and/or grow with new additions by him if his income continues to outstrip his expenses, and/or by some portion of the interest), but the interest will be exposed to a little bit of risk, gradually, via dollar cost averaging, for hopefully greater long term returns (and stepped up basis upon inheritance).
That's what I'd try to do, at least. Protect the principal safely as is his first priority, but see if you could use the interest that generates to build/DCA into something for better returns.
Re: Where should a senior safely park $300k for heirs
Treasuries are the safe choice.
If he truly would not need it, I’d at least do 50% in the stock market. It could be better for heirs
If he truly would not need it, I’d at least do 50% in the stock market. It could be better for heirs
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Re: Where should a senior safely park $300k for heirs
+1 to Treasuries and no substantial gifting to family as safe choices.
Is this $300k your parents total nest egg?
While your parents’ current income covers all expenses now, it’s possible their care costs may increase substantially. Do your parents have a long-term care policy?
Is this $300k your parents total nest egg?
While your parents’ current income covers all expenses now, it’s possible their care costs may increase substantially. Do your parents have a long-term care policy?
- Backroads4Me
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Re: Where should a senior safely park $300k for heirs
They do not have a long-term care policy.
My dad is currently taking care of mom and paying for some non-professional help during the day and one of my siblings as necessary in the evenings.
The $300k is all they have in any form of savings, but comfortably cash flow positive at this point. They also own some valuable land if worse came to worse.
I spoke with him this afternoon and frustratingly I'm "competing" with him literally walking into local banks and asking them what they can do for him and getting the full sales pitch. I think some form of a treasury ladder is starting to become a front runner and we're going to talk and walk through some things after dinner.
Re phoroner and chicagoan23
I like the idea of TIPS ladder, but assuming you believe inflation will come down eventually, isn't there an option now to lock in the longer term (say 5 years) at an elevated rate that will possibly be more beneficial in the long run rather than taking the short-term high rate now then possibly riding the rates down over the 5-year period? Probably worrying about minutia here but hoping to make this as maintenance free as possible.
I have I-bonds through Treasury Direct, but what would be the benefit of buying other treasuries though TD rather than just inside a brokerage?
Creating a TIPS ladder, would you recommend sticking with new issue or using the secondary market? I'm open to any suggestions here and will be reading a lot more about the process.
Re Chadnudj
I think this is a great second step.
My dad is currently taking care of mom and paying for some non-professional help during the day and one of my siblings as necessary in the evenings.
The $300k is all they have in any form of savings, but comfortably cash flow positive at this point. They also own some valuable land if worse came to worse.
I spoke with him this afternoon and frustratingly I'm "competing" with him literally walking into local banks and asking them what they can do for him and getting the full sales pitch. I think some form of a treasury ladder is starting to become a front runner and we're going to talk and walk through some things after dinner.
Re phoroner and chicagoan23
I like the idea of TIPS ladder, but assuming you believe inflation will come down eventually, isn't there an option now to lock in the longer term (say 5 years) at an elevated rate that will possibly be more beneficial in the long run rather than taking the short-term high rate now then possibly riding the rates down over the 5-year period? Probably worrying about minutia here but hoping to make this as maintenance free as possible.
I have I-bonds through Treasury Direct, but what would be the benefit of buying other treasuries though TD rather than just inside a brokerage?
Creating a TIPS ladder, would you recommend sticking with new issue or using the secondary market? I'm open to any suggestions here and will be reading a lot more about the process.
Re Chadnudj
I think this is a great second step.
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Re: Where should a senior safely park $300k for heirs
Based on this, you should scrap my earlier suggestion to use savings bonds in an heir's name.
I'd say to keep it relatively liquid in T-bills (52 weeks or less). End of life health care costs can certainly be substantial. The existing cash flow may seem paltry once high medical bills or the costs of assistance with activities of daily living start to occur. Not everyone faces these costs, but many seniors do.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Where should a senior safely park $300k for heirs
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Re: Where should a senior safely park $300k for heirs
$100k in FDLXX and the rest in auto rolling short term Treasury bills (<52 weeks).Backroads4Me wrote: ↑Tue Mar 21, 2023 1:48 pmIt definitely does not have to be 100% in the same investment. 50% in a 5-year treasury sounds reasonable.
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Re: Where should a senior safely park $300k for heirs
But if he and spouse have a joint account (cd) they have $250K FDIC coverage each! That means their $300K is 100% protected by fdic if their bank fails.Backroads4Me wrote: ↑Tue Mar 21, 2023 1:46 pmI agree with this. While he hasn't said it, I can't help but think some of the impetus for taking action now is hearing about bank failures and FDIC insurance on the news.
Why be afraid of something that's not fearful at all?
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Re: Where should a senior safely park $300k for heirs
Maybe 90% treasuries
And see if he is ok with 10% in SCHD dividend ETF - stable dividend paying companies.
And see if he is ok with 10% in SCHD dividend ETF - stable dividend paying companies.
Re: Where should a senior safely park $300k for heirs
I think its hard to time the bond market. There is an inverted yield curve, which is a market prediction for decreasing yields in the future.Backroads4Me wrote: ↑Tue Mar 21, 2023 5:43 pm They do not have a long-term care policy.
My dad is currently taking care of mom and paying for some non-professional help during the day and one of my siblings as necessary in the evenings.
The $300k is all they have in any form of savings, but comfortably cash flow positive at this point. They also own some valuable land if worse came to worse.
I spoke with him this afternoon and frustratingly I'm "competing" with him literally walking into local banks and asking them what they can do for him and getting the full sales pitch. I think some form of a treasury ladder is starting to become a front runner and we're going to talk and walk through some things after dinner.
Re phoroner and chicagoan23
I like the idea of TIPS ladder, but assuming you believe inflation will come down eventually, isn't there an option now to lock in the longer term (say 5 years) at an elevated rate that will possibly be more beneficial in the long run rather than taking the short-term high rate now then possibly riding the rates down over the 5-year period? Probably worrying about minutia here but hoping to make this as maintenance free as possible.
I have I-bonds through Treasury Direct, but what would be the benefit of buying other treasuries though TD rather than just inside a brokerage?
Creating a TIPS ladder, would you recommend sticking with new issue or using the secondary market? I'm open to any suggestions here and will be reading a lot more about the process.
Re Chadnudj
I think this is a great second step.
A bond ladder for 5-10 years is an option. The advantage is 100% defined cash flows if held to maturity. If sold prior, market rates could be different from par. If you want to use TIPS, search for threads on it especially by #cruncher, and use the excel worksheet from his , https://eyebonds.info/downloads/pages/TIPSLadder.html. You would need to use the secondary market, and the tax reporting is not too bad but more complex than just a 1099-INT. So a short term bond fund would also be a good option.
Post back with questions.
Re: Where should a senior safely park $300k for heirs
Before making any recommendations, make sure you understand his definition of "safe". It could very well mean FDIC insurance, for example. Remember, it's his money, his definition of "safe", and his choice in the end. He needs to clearly understand the risks and potentials of any option first, so he doesn't get an unpleasant surprise later (and blame you).
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Re: Where should a senior safely park $300k for heirs
Multi-Year Guaranteed Annuities are still paying about 5.5% for 5-10 year terms. They are guaranteed income through insurance companies. Might be something to consider.