Help me help my mom who is in very bad financial shape.

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LilyFleur
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Re: Help me help my mom who is in very bad financial shape.

Post by LilyFleur »

Andy12345 wrote: Sun Mar 26, 2023 2:26 pm
OldSport wrote: Sun Mar 26, 2023 1:59 pm Does your mom have access to 401k, 403b or other tax advantaged accounts through work? If her work does not offer, she can take a tax break on a traditional IRA.

For her income being single, she is solidly in the 22% tax bracket for a good portion of her income.

Contributing as much as she can to that would be helpful as that would give her tax savings at her marginal 22% rate, and be able to withdraw after retirement at a much lower tax rate.

Her situation would be a classic textbook example of the benefits of using tax advantaged accounts.

Probably a simple tax advantaged portfolio of 50/50 or 60/40 would be more than good enough, saving as much as she is comfortable, but at least an additional $10k/yr, ideally maxing it out.
Unfortunately her work does not offer 401k. I suggested that she fund a tIRA for the next four years while she is still able to do so.
This is a very good idea. She should be funding the maximum allowable by law each year.

You and she also need to see if she could collect SS from her ex-husband. There are specific rules that you can research (length of marriage, length of time since the divorce, etc.) In my case, I had to make an appointment at the local SS office, bring my divorce decree, and they were able to print out an estimate for what I could collect on my own SS vs. my ex-husband's. I believe I also had to bring my ex-husband's social security number. Do not do this by phone. The SS reps on the phone gave me bad advice that was incorrect.
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celia
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Re: Help me help my mom who is in very bad financial shape.

Post by celia »

Something doesn’t compute with the numbers you have. I think you need to get better numbers for her. Look at her tax returns. She probably has some capital gains or dividends or interest there. And I agree with someone above that she probably has more than $60k after tax income each year that is just “evaporating”.

Next, look at her pay stubs/ receipts for a few months to see what her withholdings are, how much is withheld for taxes, and her take-home amount. I would also look at a year’s worth of investment statements, credit card bills, and checking account statements.

Start with a blank spreadsheet of typical budget categories (taxes, savings, housing, utilities, food, clothing, pets, transportation, vacation, donations, gifts, etc.) Add more categories as needed. Using last year’s data, fill in her budget to account for all her income to show her this is her current spending (ie, “budget”) but that it is unsustainable. The spreadsheet will likely be an eye-opener for her but you should remain “neutral”. Then give her the same spreadsheet without any numbers filled in so she can create her own retirement “budget” based on her future income streams. She needs to figure out what she wants to spend her money on based only on her retirement income.

Don’t be surprised at what you see. If you are acting like her financial advisor, she is the one to decide on what she wants, not you.

In the future, don’t say she needs to save $20K a year. Let her realize that she really needs to start spending only her retirement budget now, while saving the rest. (Her yearly savings should be a lot more than $20k each year if she started saving all other income but that doesn’t need to be said out loud.)

This will probably not lead to sudden changes. But you can fill in all her 2023 spending at the end of the year to see how much progress was made. And if she uses computers, she can fill in the 2023 expenses herself.

And I agree with livesoft in that she has a sufficient income for retirement. It is just a puzzle on how she spends that income. The spending part just needs some work.
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AnnetteLouisan
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Re: Help me help my mom who is in very bad financial shape.

Post by AnnetteLouisan »

This may already have been mentioned but catch up contributions for 401K, IRA, and buying service credit for pensions from prior jobs, if applicable.
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ram
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Re: Help me help my mom who is in very bad financial shape.

Post by ram »

Andy12345 wrote: Sun Mar 26, 2023 11:46 am 66, single, annual salary of $80,000, after taxes $60,000

Projected SS benefit at 70 is $2600

~ $50,000 in investments below. These are with her best friends son in law. He doesn’t charge her any fees. I’m sure he could put money into whatever funds she wants.

DFAPX 8,367 ER .19 (Looks to be some sort of fixed income fund)
DFGEX 2,639 ER .22 (Global Real Estate)
DFIEX 9809 ER .24 (International fund)
DFCEX 3717 ER .4 (Emerging markets)
VIMAX 4,699 ER .05 (Mid cap admiral)
VSMAX 6,987 ER .05 (small cap admiral)
VTSAX 19,151 ER .05 (total stock admiral)

~ $60,000 in company profit share.

~ $25,000 cash savings in low yield account. I have her switching this to HYSA now. She says she is adding $600 to this account every month.

Expenses

$1200 per month rent

No debts that she is telling me about.

As you can see the financial picture for my mom is pretty bleak. She says that she can realistically work until 75. I personally am not so sure about that. I would say 71 is a better guesstimate. She feels very confident in long term employment at her job. (She always gets good feedback at reviews, is chosen to be on advisory committees, etc)

She does not own a house.

Can anyone give any advice here? What should her investment allocations be? I am wracking my brain to figure out a way to get her in a trailer home or something like that for cheap near the area where I live when she finally needs to stop working. Living with my family is not an option due to lack of space and wanting to preserve my marriage.
I know many 65+ people who live a content life on 2600/month in my small midwestern town.
Recommendations;
Work as long as possible.
Save 20K/yr.
Get to 260K by retirement.
Presumably retirement duration will be more like 20 yrs than the 30 years usually assumed.
2600x12 = 31K + 13K (5% WR of 260 K ) = 44K. This is likely better than 50% of singles in USA.
Ram
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Wiggums
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Re: Help me help my mom who is in very bad financial shape.

Post by Wiggums »

Andy12345 wrote: Sun Mar 26, 2023 2:50 pm
HomeStretch wrote: Sun Mar 26, 2023 2:33 pm :oops:
If your mom is contributing $600/month to a Taxable savings account, she should instead contribute to a Roth IRA, which will grow tax free. Or to a deductible Traditional IRA, if eligible, as it looks like her marginal tax rate in retirement may be lower than her current rate.
She’s just putting the money into a savings account that is paying .1%. She’s not funding any retirement accounts. I talked her about treasuries and she said “well that’s doesn’t look smart. The government is about to go belly up.”
She has more than a lot of people. It doesn’t sound like your Mom wants to change. You probably have more patience than me. I’d walk away.
"I started with nothing and I still have most of it left."
Katietsu
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Re: Help me help my mom who is in very bad financial shape.

Post by Katietsu »

I think you have a good plan for right now. Leave the investment account alone. Start a IRA. Save extra in a HYSA.

Consider spending some time with her in person. First, observe more than advise. Maybe you will be able to see ways that her spending can be reduced. For instance, you might find out her cable bill is $300 when $120 meets her needs. Could she have recurring subscriptions being charged to her credit card bill for things long forgotten and unused? I would not be surprised to find several thousand in expenses from which she is not really enjoying a benefit.
DesertGator
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Re: Help me help my mom who is in very bad financial shape.

Post by DesertGator »

Andy12345 wrote: Sun Mar 26, 2023 2:50 pm
HomeStretch wrote: Sun Mar 26, 2023 2:33 pm :oops:
If your mom is contributing $600/month to a Taxable savings account, she should instead contribute to a Roth IRA, which will grow tax free. Or to a deductible Traditional IRA, if eligible, as it looks like her marginal tax rate in retirement may be lower than her current rate.
She’s just putting the money into a savings account that is paying .1%. She’s not funding any retirement accounts. I talked her about treasuries and she said “well that’s doesn’t look smart. The government is about to go belly up.” :oops: So she is very conservative and it’s costing her money. I’m going through CD options with her now to at least offset some of the inflation. One of the CDs will be in a tIRA
If the gov't is about to go belly up, she should stockpile food, medicine, and things to trade with (alcohol, tobacco, firearms/ammo). If it doesn't go belly up, she can eat, drink and go hunting.
Northern Flicker
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Re: Help me help my mom who is in very bad financial shape.

Post by Northern Flicker »

Earning $80k/yr and having no tax-deferred retirement account is surprising. Does she have one at her job? If not, she should be doing annual IRA contributions. But an employer plan is preferred and may provide a match. What are her options there?

The main question I have is the company profit sharing asset. Is that vested? How is it invested?

The advisor might benefit for investigating the CRSP indices tracked by the Vanguard midcap and smallcap funds instead of presumably relying on the fund names. The midcap fund is mostly a large cap using anyone else's taxonomy, and the small cap find is a mid and smallcap fund. VIMAX likely is canceling out much of the size tilt the advisor was trying to implement.

What are the embedded capital gains of these funds?
sailaway
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Re: Help me help my mom who is in very bad financial shape.

Post by sailaway »

First, she is not in very bad shape. Rephrase your own thinking to adjust how you interact on this topic. There is still room for concern, primarily in how much she is spending. Understanding this will help prepare, as you can see how much can be subsidized (ie, some food via SNAP, some utilities via local programs) vs what won't be subsidized. And if she can recognize where to spend less now, she will be able to save more.

$50k+ seems like a lot for a single person with very reasonable rent. She is probably very used to everything and doesn't see where she can comfortably cut back, but if she is willing to track, there might be some low lying fruit.
lakpr
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Re: Help me help my mom who is in very bad financial shape.

Post by lakpr »

I just wanted to say, if your Mom’s financial advisor is indeed charging only a flat fee $170, you got an excellent FA there. The portfolio looks very reasonable, good to excellent funds, and does seem like tailored to be conservative as to not lose the principal (age appropriate). Hard to find such FAs.

Sure the portfolio can further be optimized and brought in line with the Boglehead standard 3 fund portfolio. But that requires somewhat hands on maintenance of her current portfolio; the current situation is quite reasonable indeed.

————-

That said, if she has not yet filed taxes for 2022, pull out $7,000 out of that taxable portfolio and stick it into traditional IRA for an immediate $1600+ in reduced tax (22% bracket assumed). If affordable, add extra $7,500 for 2023 too at the same time.
Last edited by lakpr on Sun Mar 26, 2023 8:28 pm, edited 1 time in total.
Dregob
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Re: Help me help my mom who is in very bad financial shape.

Post by Dregob »

Andy12345 wrote: Sun Mar 26, 2023 2:50 pm
HomeStretch wrote: Sun Mar 26, 2023 2:33 pm :oops:
If your mom is contributing $600/month to a Taxable savings account, she should instead contribute to a Roth IRA, which will grow tax free. Or to a deductible Traditional IRA, if eligible, as it looks like her marginal tax rate in retirement may be lower than her current rate.
She’s just putting the money into a savings account that is paying .1%. She’s not funding any retirement accounts. I talked her about treasuries and she said “well that’s doesn’t look smart. The government is about to go belly up.” :oops: So she is very conservative and it’s costing her money. I’m going through CD options with her now to at least offset some of the inflation. One of the CDs will be in a tIRA
I'd ask your mom if the government goes belly up what do you think happens to your Medicare and SS?
Northern Flicker
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Re: Help me help my mom who is in very bad financial shape.

Post by Northern Flicker »

lakpr wrote: That said, if she has not yet filed taxes for 2022, pull out $7,500 out of that taxable portfolio and stick it into traditional IRA for an immediate $1600+ in reduced tax (22% bracket assumed). If affordable, double that $7,500 for 2023 too at the same time.
The IRA contribution limit for 2022 is $7000 for someone age 50+. It goes up to $7500 in 2023.
GibsonL6s
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Re: Help me help my mom who is in very bad financial shape.

Post by GibsonL6s »

Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
lakpr
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Re: Help me help my mom who is in very bad financial shape.

Post by lakpr »

Northern Flicker wrote: Sun Mar 26, 2023 7:58 pm
lakpr wrote: That said, if she has not yet filed taxes for 2022, pull out $7,500 out of that taxable portfolio and stick it into traditional IRA for an immediate $1600+ in reduced tax (22% bracket assumed). If affordable, double that $7,500 for 2023 too at the same time.
The IRA contribution limit for 2022 is $7000 for someone age 50+. It goes up to $7500 in 2023.
Ah, true. Let me correct my previous post.
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AnnetteLouisan
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Re: Help me help my mom who is in very bad financial shape.

Post by AnnetteLouisan »

GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
lakpr
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Re: Help me help my mom who is in very bad financial shape.

Post by lakpr »

AnnetteLouisan wrote: Sun Mar 26, 2023 8:41 pm
GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
@Annette and @Gibson,

Not to get sidetracked from the OP's question, but not sure why you say this. The original post said that this particular advisor put her in Dimensional Funds (which, while slightly more expensive than Vanguard/Fidelity funds, are not outrageously expensive; if funds like that are offered in 401(k) most people would say they are reasonable), plus $170 annually (mentioned in a subsequent post).

I am as much hardcore advocate of a DIY approach as anybody else, but in this particular case, I feel that fear may be unwarranted.
Last edited by lakpr on Sun Mar 26, 2023 8:53 pm, edited 1 time in total.
ralph124cf
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Re: Help me help my mom who is in very bad financial shape.

Post by ralph124cf »

I agree with the recommendations for a SPIA, but I would recommend waiting until age 75 for the increased mortality credits.

Go to immediateannuities.com to compare various starting ages. Be sure that you get a single life only. No period certain, no refund of premium.

Ralph
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AnnetteLouisan
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Re: Help me help my mom who is in very bad financial shape.

Post by AnnetteLouisan »

lakpr wrote: Sun Mar 26, 2023 8:52 pm
AnnetteLouisan wrote: Sun Mar 26, 2023 8:41 pm
GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
@Annette and @Gibson,

Not to get sidetracked from the OP's question, but not sure why you say this. The original post said that this particular advisor put her in Dimensional Funds (which, while slightly more expensive than Vanguard/Fidelity funds, are not outrageously expensive; if funds like that are offered in 401(k) most people would say they are reasonable), plus $170 annually (mentioned in a subsequent post).

I am as much hardcore advocate of a DIY approach as anybody else, but in this particular case, I feel that fear may be unwarranted.
He may be a great guy and Dimensional may be great.
It’s the risk of affinity fraud. It’s where the investor has an incentive not to ask questions and trust on the basis of friendship. A friend’s son in law is textbook. People tend to put too much faith in a friend’s son in law. It’s not about the cost. We’re all alert to internet strangers posing a risk, but more often than not it’s people we know, or think we know, and trust implicitly. Does SIL work for a firm or is he independent? (Firm would be good if reputable). Do other friends use him as an advisor too? (A yes answer would be bad).

Again, not to impugn the character of the son in law in any way, it’s just $ and friendship should be kept separate for the sake of the friendship. And the $.
lakpr
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Re: Help me help my mom who is in very bad financial shape.

Post by lakpr »

AnnetteLouisan wrote: Sun Mar 26, 2023 9:16 pm
lakpr wrote: Sun Mar 26, 2023 8:52 pm
AnnetteLouisan wrote: Sun Mar 26, 2023 8:41 pm
GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
@Annette and @Gibson,

Not to get sidetracked from the OP's question, but not sure why you say this. The original post said that this particular advisor put her in Dimensional Funds (which, while slightly more expensive than Vanguard/Fidelity funds, are not outrageously expensive; if funds like that are offered in 401(k) most people would say they are reasonable), plus $170 annually (mentioned in a subsequent post).

I am as much hardcore advocate of a DIY approach as anybody else, but in this particular case, I feel that fear may be unwarranted.
He may be a great guy and Dimensional may be great.
It’s the risk of affinity fraud. It’s where the investor has an incentive not to ask questions and trust on the basis of friendship. A friend’s son in law is textbook. People tend to put too much faith in a friend’s son in law. It’s not about the cost. We’re all alert to internet strangers posing a risk, but more often than not it’s people we know, or think we know, and trust implicitly. Does SIL work for a firm or is he independent? Do other friends use him as an advisor too?

Again, not to impugn the character of the son in law in any way, it’s just $ and friendship should be kept separate for the sake of the friendship. And the $.
Fair enough. My counterpoint is that (correct me if I am wrong in the facts): the money is from a post-divorce settlement, divorce occurred at least 10 years ago, and I am assuming that this money had been invested with this FA since then. If 10 years (or even half the time, 5 years) is not a long enough time where the person HAD a chance to "help himself" but did not, does that not speak to his integrity and trustworthiness?

What is said above, can be reasonably also said about the OP too, no? Son, managing Mom's money, can also be a textbook case of elder abuse ... Same "affinity fraud"
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AnnetteLouisan
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Re: Help me help my mom who is in very bad financial shape.

Post by AnnetteLouisan »

lakpr wrote: Sun Mar 26, 2023 9:24 pm
AnnetteLouisan wrote: Sun Mar 26, 2023 9:16 pm
lakpr wrote: Sun Mar 26, 2023 8:52 pm
AnnetteLouisan wrote: Sun Mar 26, 2023 8:41 pm
GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
@Annette and @Gibson,

Not to get sidetracked from the OP's question, but not sure why you say this. The original post said that this particular advisor put her in Dimensional Funds (which, while slightly more expensive than Vanguard/Fidelity funds, are not outrageously expensive; if funds like that are offered in 401(k) most people would say they are reasonable), plus $170 annually (mentioned in a subsequent post).

I am as much hardcore advocate of a DIY approach as anybody else, but in this particular case, I feel that fear may be unwarranted.
He may be a great guy and Dimensional may be great.
It’s the risk of affinity fraud. It’s where the investor has an incentive not to ask questions and trust on the basis of friendship. A friend’s son in law is textbook. People tend to put too much faith in a friend’s son in law. It’s not about the cost. We’re all alert to internet strangers posing a risk, but more often than not it’s people we know, or think we know, and trust implicitly. Does SIL work for a firm or is he independent? Do other friends use him as an advisor too?

Again, not to impugn the character of the son in law in any way, it’s just $ and friendship should be kept separate for the sake of the friendship. And the $.
Fair enough. My counterpoint is that (correct me if I am wrong in the facts): the money is from a post-divorce settlement, divorce occurred at least 10 years ago, and I am assuming that this money had been invested with this FA since then. If 10 years (or even half the time, 5 years) is not a long enough time where the person HAD a chance to "help himself" but did not, does that not speak to his integrity and trustworthiness?

What is said above, can be reasonably also said about the OP too, no? Son, managing Mom's money, can also be a textbook case of elder abuse ... Same "affinity fraud"
He could have taken the money and given her false account statements. Those frauds don’t become evident until the investor tries to withdraw or move the money. But ponzis and frauds are very common. Why is he charging her so little? What evidence does she have that he invested the money at all? Again, not trying to attack him, it just happens to be a situation that is common for fraud because friends don’t want to ask questions of the SIL for fear of affecting the friendship. You asked why Gibson and I commented this way so I wanted to explain it.
JS-Elcano
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Re: Help me help my mom who is in very bad financial shape.

Post by JS-Elcano »

Andy12345 wrote: Sun Mar 26, 2023 12:26 pm
muffins14 wrote: Sun Mar 26, 2023 12:22 pm What are her actual expenses? Surely there are more than only the $1200 for rent?

It seems like she makes 60k after tax and only saves $600*12= $7200, rent is $1200*12=$14400, so where is the other $38,000 going?

$2600 for social security would provide for $1200 rent plus $1400 for spending. Tight, but it could be done I think if Medicare is covering serious healthcare spending. There are people with zero savings and also debt that are in worse shape
Thanks for this perspective. I suggested that she start saving 20,000 per year now to help get used to what her income would be like in SS. She thought that number was impossible. I am not exactly sure where the unaccounted for 38,000 is going. I will press her more on this when the time is right.
Regarding the underlined in bold: I hear that all the time from people young or old and just cannot wrap my mind around it. My issue is this: What, if anything, has she been thinking? She has a salary of 80k and knows her SS will be 31k. She finds 31k *impossible* to live on but at the same time decided that she would not save any considerable amount of the 80k to close that gap and instead freewheel her way through the rest of her life. Is she expecting you to pick up the tap? What is her plan besides "this number is impossible"? :oops:

Re-reading some of the OP's responses I see that her investments are from a divorce settlement decades ago. Does this mean that she never thought about her future, that after that event she decided to never save for her own retirement while having an 80k salary as a single person? No RothIRA, IRA, brokerage? It just bogles the mind.
Last edited by JS-Elcano on Sun Mar 26, 2023 10:01 pm, edited 1 time in total.
maroon
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Re: Help me help my mom who is in very bad financial shape.

Post by maroon »

I agree with the poster(s) upthread recommending actually seeing what your mom is spending money on. My mother-in-law - living solely on Social Security - was donating relatively large amounts of money to her church, and also buying tons of random stuff via mail-order-catalogs. I think your mom needs to get a grip on her spending, as her $80K annual income is not low by any means.
02nz
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Re: Help me help my mom who is in very bad financial shape.

Post by 02nz »

Andy12345 wrote: Sun Mar 26, 2023 2:26 pm
OldSport wrote: Sun Mar 26, 2023 1:59 pm Does your mom have access to 401k, 403b or other tax advantaged accounts through work? If her work does not offer, she can take a tax break on a traditional IRA.

For her income being single, she is solidly in the 22% tax bracket for a good portion of her income.

Contributing as much as she can to that would be helpful as that would give her tax savings at her marginal 22% rate, and be able to withdraw after retirement at a much lower tax rate.

Her situation would be a classic textbook example of the benefits of using tax advantaged accounts.

Probably a simple tax advantaged portfolio of 50/50 or 60/40 would be more than good enough, saving as much as she is comfortable, but at least an additional $10k/yr, ideally maxing it out.
Unfortunately her work does not offer 401k. I suggested that she fund a tIRA for the next four years while she is still able to do so.
Good thinking. She has a few more weeks to fund for 2022!
GibsonL6s
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Re: Help me help my mom who is in very bad financial shape.

Post by GibsonL6s »

lakpr wrote: Sun Mar 26, 2023 8:52 pm
AnnetteLouisan wrote: Sun Mar 26, 2023 8:41 pm
GibsonL6s wrote: Sun Mar 26, 2023 8:24 pm Not to be alarmist but I would get her away from the advisor ASAP. These situations are ripe for fraud or bad investment decisions, the last thing she can afford it to loose her assets. I would want her to have her money at Schwab, VG, Fidelity etc. She does not need an advisor with you in the picture.
&1
@Annette and @Gibson,

Not to get sidetracked from the OP's question, but not sure why you say this. The original post said that this particular advisor put her in Dimensional Funds (which, while slightly more expensive than Vanguard/Fidelity funds, are not outrageously expensive; if funds like that are offered in 401(k) most people would say they are reasonable), plus $170 annually (mentioned in a subsequent post).

I am as much hardcore advocate of a DIY approach as anybody else, but in this particular case, I feel that fear may be unwarranted.
It was the comment that he could put her in any funds he wants. He may have a POA with authority to do withdrawals and can put her in inappropriate fund for her situation. I am not questioning Dimensional funds but would think the son needs to understand the advisors relationship here.
lakpr
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Re: Help me help my mom who is in very bad financial shape.

Post by lakpr »

GibsonL6s wrote: Sun Mar 26, 2023 10:27 pm It was the comment that he could put her in any funds he wants. He may have a POA with authority to do withdrawals and can put her in inappropriate fund for her situation. I am not questioning Dimensional funds but would think the son needs to understand the advisors relationship here.
I read it differently. OP said (bold underline emphasis mine)
He doesn’t charge her any fees. I’m sure he could put money into whatever funds she wants.
OP clarified later that there seems to be a $170 flat annual fee, not quite zero.

Absolutely agree that the actual nature of advisor relationship should be understood
Northern Flicker
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Re: Help me help my mom who is in very bad financial shape.

Post by Northern Flicker »

02nz wrote: Sun Mar 26, 2023 10:17 pm
Andy12345 wrote: Sun Mar 26, 2023 2:26 pm
OldSport wrote: Sun Mar 26, 2023 1:59 pm Does your mom have access to 401k, 403b or other tax advantaged accounts through work? If her work does not offer, she can take a tax break on a traditional IRA.

For her income being single, she is solidly in the 22% tax bracket for a good portion of her income.

Contributing as much as she can to that would be helpful as that would give her tax savings at her marginal 22% rate, and be able to withdraw after retirement at a much lower tax rate.

Her situation would be a classic textbook example of the benefits of using tax advantaged accounts.

Probably a simple tax advantaged portfolio of 50/50 or 60/40 would be more than good enough, saving as much as she is comfortable, but at least an additional $10k/yr, ideally maxing it out.
Unfortunately her work does not offer 401k. I suggested that she fund a tIRA for the next four years while she is still able to do so.
Good thinking. She has a few more weeks to fund for 2022!
Yes. And a tIRA is definitely preferred to a Roth IRA in this situation.
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Andy12345
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Re: Help me help my mom who is in very bad financial shape.

Post by Andy12345 »

Thank you everyone for the input and suggestions. The plan now is for my mom to put 7500$ into tIRA the next four years that she’s allowed as well as increase her savings rate and decrease her spending. Her risk tolerance for investing is apparently zero so we are going to make use of CDs for now. The first 7500$ is going into ally’s 5 year 4.25% CD.
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AnnetteLouisan
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Re: Help me help my mom who is in very bad financial shape.

Post by AnnetteLouisan »

Andy12345 wrote: Mon Mar 27, 2023 5:23 am Thank you everyone for the input and suggestions. The plan now is for my mom to put 7500$ into tIRA the next four years that she’s allowed as well as increase her savings rate and decrease her spending. Her risk tolerance for investing is apparently zero so we are going to make use of CDs for now. The first 7500$ is going into ally’s 5 year 4.25% CD.
Isn’t she eligible for a Roth IRA?
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Andy12345
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Re: Help me help my mom who is in very bad financial shape.

Post by Andy12345 »

AnnetteLouisan wrote: Mon Mar 27, 2023 5:28 am
Andy12345 wrote: Mon Mar 27, 2023 5:23 am Thank you everyone for the input and suggestions. The plan now is for my mom to put 7500$ into tIRA the next four years that she’s allowed as well as increase her savings rate and decrease her spending. Her risk tolerance for investing is apparently zero so we are going to make use of CDs for now. The first 7500$ is going into ally’s 5 year 4.25% CD.
Isn’t she eligible for a Roth IRA?
Probably but because her income is 80k now and will be much less at retirement I think there’s more tax savings in a tIRA correct?
HomeStretch
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Re: Help me help my mom who is in very bad financial shape.

Post by HomeStretch »

Every additional $ your mom can put into savings is helpful. So a possible conversation with your mom could be:
“hey mom, if you use a low-cost brokerage account at Fidelity [or Schwab] instead of your current broker and a bank savings account, you can reduce your investment cost by ~$200/year on your investments and earn ~$1,100/year more by using treasuries or a treasury money market fund for your cash savings. The additional $1,300 in savings will boost your current savings rate of $7,200/year by 18% to $8,500/year. With little risk, this helps you increase your retirement portfolio. Plus Fidelity has a local office that can help you in a pinch if I’m not around.”
02nz
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Re: Help me help my mom who is in very bad financial shape.

Post by 02nz »

Andy12345 wrote: Mon Mar 27, 2023 5:47 am
AnnetteLouisan wrote: Mon Mar 27, 2023 5:28 am
Andy12345 wrote: Mon Mar 27, 2023 5:23 am Thank you everyone for the input and suggestions. The plan now is for my mom to put 7500$ into tIRA the next four years that she’s allowed as well as increase her savings rate and decrease her spending. Her risk tolerance for investing is apparently zero so we are going to make use of CDs for now. The first 7500$ is going into ally’s 5 year 4.25% CD.
Isn’t she eligible for a Roth IRA?
Probably but because her income is 80k now and will be much less at retirement I think there’s more tax savings in a tIRA correct?
She should absolutely do a traditional, not Roth IRA. She'll save around 22% in federal income tax on the contribution, and on withdrawal it will be taxed at 0% or very low rates, as she will have very little other income.
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Re: Help me help my mom who is in very bad financial shape.

Post by Katietsu »

HomeStretch wrote: Mon Mar 27, 2023 5:57 am Every additional $ your mom can put into savings is helpful. So a possible conversation with your mom could be:
“hey mom, if you use a low-cost brokerage account at Fidelity [or Schwab] instead of your current broker and a bank savings account, you can reduce your investment cost by ~$200/year on your investments and earn ~$1,100/year more by using treasuries or a treasury money market fund for your cash savings. The additional $1,300 in savings will boost your current savings rate of $7,200/year by 18% to $8,500/year. With little risk, this helps you increase your retirement portfolio. Plus Fidelity has a local office that can help you in a pinch if I’m not around.”
This might be good advice to someone else. But this is not good advice here. Mom had to be convinced to go from a 0.1% savings account at a local bank to a 4.75% CD with Ally. Despite some concerns here about having a family friend manage the investment account, the advisor appears to be doing a good job. More importantly, Mom is comfortable with those investments and not hiding the cash in her mattress.
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Re: Help me help my mom who is in very bad financial shape.

Post by finite_difference »

Try to max out 401k and Roth IRA every year.

Delay SS to 70.

Keep expenses low and shouldn’t be too bad. I would stick to a 50/50 asset allocation.

Low income housing is typically high profit for the landlord and a bad deal for the tenant. It’s usually worth it to pay a little more.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
HomeStretch
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Re: Help me help my mom who is in very bad financial shape.

Post by HomeStretch »

Katietsu wrote: Mon Mar 27, 2023 8:27 am
HomeStretch wrote: Mon Mar 27, 2023 5:57 am Every additional $ your mom can put into savings is helpful. So a possible conversation with your mom could be:
“hey mom, if you use a low-cost brokerage account at Fidelity [or Schwab] instead of your current broker and a bank savings account, you can reduce your investment cost by ~$200/year on your investments and earn ~$1,100/year more by using treasuries or a treasury money market fund for your cash savings. The additional $1,300 in savings will boost your current savings rate of $7,200/year by 18% to $8,500/year. With little risk, this helps you increase your retirement portfolio. Plus Fidelity has a local office that can help you in a pinch if I’m not around.”
This might be good advice to someone else. But this is not good advice here. Mom had to be convinced to go from a 0.1% savings account at a local bank to a 4.75% CD with Ally. Despite some concerns here about having a family friend manage the investment account, the advisor appears to be doing a good job. More importantly, Mom is comfortable with those investments and not hiding the cash in her mattress.
OP is concerned about mom’s financial future. If OP’s mom is also concerned, framing a conversation as I suggested is worthwhile for OP to consider. Mom is an adult and can say no. But it’s certainly worthwhile to suggest a relatively painless way to increase her savings rate in case she also has concerns as she has already said she doesn’t think she can significantly increase her savings rate in any other way.

OP, with a low portfolio $, relook at the equity % for mom’s portfolio once you have the details of what the $60k profit sharing is invested in. Your mom can’t afford much in the way of market losses and the advisor portfolio has a fair amount of equity in it already.
Northern Flicker
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Re: Help me help my mom who is in very bad financial shape.

Post by Northern Flicker »

AnnetteLouisan wrote: Mon Mar 27, 2023 5:28 am
Andy12345 wrote: Mon Mar 27, 2023 5:23 am Thank you everyone for the input and suggestions. The plan now is for my mom to put 7500$ into tIRA the next four years that she’s allowed as well as increase her savings rate and decrease her spending. Her risk tolerance for investing is apparently zero so we are going to make use of CDs for now. The first 7500$ is going into ally’s 5 year 4.25% CD.
Isn’t she eligible for a Roth IRA?
She most likely should have a fair amount of trad assets before considering Roth contributions. But again, the contribution limit is $7000 for 2022.
Northern Flicker
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Re: Help me help my mom who is in very bad financial shape.

Post by Northern Flicker »

ralph124cf wrote: Sun Mar 26, 2023 8:52 pm I agree with the recommendations for a SPIA, but I would recommend waiting until age 75 for the increased mortality credits.
You don't get mortality credits by delaying a SPIA purchase. By delaying, you are funding fewer years of expenses with the SPIA, and more years of expenses with assets not used for the purchase of the SPIA. Mortality credits are credits from annuitants who die before their age of expectancy that are used to fund benefits of annuitants who live past their age of life expectancy.

Delaying typically increases the total number of years that need to be funded. The SPIA funds out to the age of life expectancy. A 75-year-old with health status that is average for the age has an attained age at life expectancy that is slightly older than that of a 70-year-old by virtue of having avoided dying before age 75.

As a hypothetical example, if the life expectancy of the 70-year-old is 12 years and the life expectancy of a 75-year-old is 9 years, then buying a SPIA at age 70 funds expenses up to age 82, and if living past that, mortality credits from the SPIA will fund the additional years.

But if waiting to age 75 in the hypothetical example, the annuitant is funding the years while age 70-74 with funds not used for the SPIA purchase, and funding out to age 84 with the SPIA. Delaying the SPIA purchase means funding 2 additional years in this example.

Delaying the SPIA purchase means funding more years to fund out to the age of death if the SPIA ultimately is purchased. This detriment is offset by the annuitant having more info about health status outcome when making the purchase decision. The prospective annuitant may choose not to fund a SPIA if expected expenses are greater and over a shorter life expectancy period than originally planned due to changes health status. By delaying, an annuitant may invest the assets in inflation-indexed assets or a portfolio expected to match or outpace inflation so that the inflation risk of the SPIA is in play over fewer years. Investment return on the assets while delaying will also affect the determination.
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