Investment choices for mother in law?

[Ronason]

Hi everyone. Long time reader. First post. It concerns my mother in law. She is a very sweet person but has never had any facility with money. She is turning 70 next year and has never saved anything. She has little practicality and couldn't save from the 60-70K she made annually.

Her parents were frugal and when her mother passed away 2 years ago, left her the childhood home which she rents out. She also left her about $250K inheritance. She has been using a 1% AUM advisor which I know from this forum is the absolute wrong thing to do. This is money she cannot risk losing so I ask the forum what would be the least risky way to make it grow without the financial advisor. I know we can put it in a CD or a MMA which probably don't keep up with inflation. Anything else? In the back of my mind, I fear that I will be having to cover her expenses when her money runs out.

Thanks in advance.

[Kamban]

What is her health like. Does she live in her mother's home. What are her annual expenses. How much does she get in social security.

Since she will not have a mortgage she can get $10K annually safely from her $250K savings and add it to the SS income.

As far as investing, maybe 70 % in index bonds and 30 % in stock index

[Hatton]

This strikes me as a situation where an immediate annuity would make sense. Hopefully her social security, rental income and annuity payment would cover expenses.  Tough situation

[Ronason]

She's in good health. She only has Medicare part A. She does draw SS but I havent asked how much she gets per month. She has a home in a different state in which she lives with 200K mortgage! She makes peanuts in rental income- maybe 5-10K/year.

[Ronason]

Also she still works and will continue to do so for as long as she can- continuing with 60K per annum. Her mother lived until 96!

[Kamban]

Why is she holding on to the rental home for the small rental income. How much is it worth? Will she be better off selling it and investing the money?

[Ronason]

It's he home she was raised in. Probably very sentimental for her. I think she could get 300-400K for it.

[Dicast]

Treading the family financial waters can be very difficult.  Does she want your help?  Does she realize how bad her financial situation is?  Does your spouse share the same concerns?  Does anyone else in the family see what you are seeing?

If she has lived this long without ever saving anything I would be cautious moving her away from a financial advisor without something very concrete set up.  I think they idea of an immediate annuity is good.  You'd probably need to balance the cost of the annuity, likely low returns against the cost of an advisor.

My mother-in-law uses a 1.5% AUM advisor.  I can't touch that discussion with a ten foot pole.  It is a friend.  They trust him...etc.  I can only tell them what I do and why...but only when they ask.  Early on I had asked and tried to talk about it, but the resistance to the discussion was plenty of a warning.  You don't want all of your holidays to be bitter because you are nosing into other people's finances.

My parents use Edward Jones...they have asked me what I think. I have recommended to run away as fast as they can with a preference to go to Vanguard.  They said they would but it has been nearly a year without any changes.  I asked about 6 months in and while my mother still wants to switch my dad seems pretty uneasy about moving to a new company.

[Hatton]

I don't know much about them but perhaps looking into a reverse mortgage.  Another thought sell the rental and pay off the mortgage on her primary home. If she will accept help is a big question.  Her expenses need to be examined etc.

[jfoxcpacfp]

I concur with Dicast. Unless she has asked for your help, you are worrying about a non-event. Paying a 1% AUM fee is not black and white and she probably has a personal relationship there. If the long-term return of the investments is more than the 1% (which definitely should be), it would be ridiculous to move to CDs and watch inflation eat away at them - cutting off the nose to spite the face, so to speak. If she is open to discussing finances, maybe ask to look at her historical returns. You may be surprised.

There are several options beyond moving her in with you whenever the time comes and, at this point, I wouldn't ask for trouble by bringing up the topic thay you may be stuck paying her expenses. If it gets to that (and it may never), you can always offer a monthly allowance to be recouped from her estate, structured as a loan.

You didn't mention if your wife is an only child. Hopefully there are siblings who can also worry about her.

[Kamban]

If your wife is closer to her mom, she should have some sort of discussion on her future. I have found out that when it comes to taking care of parents somehow it seems to fall in our laps when the time comes. Not that I do not want to do it but I like to know about it well ahead of time so that I can prepare for it. Luckily my in-laws are closer to me as regards to discussing finance, than to my wife. Hence I had no problems arranging it well ahead of time.

I am concerned that a $400K house is bringing in only $5-10K rent per year. Why?. Are there substantial repairs needed. Even my $115K rental town home brings in $10.5K per year. Unless she plans to move in there later on, the best thing is to sell when the market is high and invest the proceeds.

If your MIL, wife or her siblings do not want to have the talk, there is not much you can do but wait for the inevitable to happen.

[Antares]

I don't know whether this will be helpful to you Ronason, but I am dealing with a similar situation with my 84 year old mother-in-law. A big difference is that she became scared about her finances and asked for help. She lives in a small rented apartment near family but in Manhattan, resulting in her expenses being significantly larger than they otherwise might be. I recently reviewed her finances for the first time.

Roughly sketched, her situation is that she is currently spending about $115,000 per year. Between SS and passive income from an inherited real estate partial ownership, she generates about $45,000 per year. She has a portfolio of close to $900,000, and owns a home in Cape Cod that is paid in full and served her well for many years. She used to live in it full time, but now only spends June through Mid September there. It's worth $700,000 and she incurs costs of about $20,000 per year related to the house between taxes, upkeep, repairs, renting a car when she's there, etc.

And one more thing: She has a longstanding advisor with whom she has a relationship with but doesn't fully trust. 1% AUM plus costs associated with some of the investments and funds he has her in. Nonetheless, he's done ok by her over the last ten years with an income-oriented portfolio. Nothing strikingly troubling, but an expensive advisor at a Big Firm. Turns out five years ago she took $300,000 out of the account because she got scared and put it in CD at low interest at her bank that expires in January.

After a good discussion, she decided she doesn't need the burden of the house anymore. She'd rather reduce her financial stress. After the expenses of selling the house, she should yield maybe $660,000 in cash and $20,000 less in expenses. That means expenses of $50,000 to fund after passive income and a portfolio of $1,560,000, which is slightly over 3% per year. Very doable at her age.

She doesn't want to give up the advisor, but though conversation has become aware of how expensive he is. I'm not sure I want to take over full responsibility for her investments at this point anyway. It looks like she'll leave the existing money with him, and I'll help her open a Vanguard account into which the CD and home sale proceeds will go. I'll help her find some low cost funds there. I had her ask whether he'd still charge 1% if she put the new money with him into funds we decided on that would require no active management, and he would not go for that. Not surprised. I don't think he even wanted to fully understand the proposal.

Now the effort turns to helping her open her mind to some kind of assisted living arrangement. She's slowly having more difficulty, but can live independently still now. Living with my family is not an option. She's spent decades thinking of assisted living as a nursing home, and saying "just shoot me".

I don't know if that's helpful, and if anyone has suggestions for what I've missed, please let me know.

[Hatton]

antares I think your MIL will be ok if she sells the cape cod house.  At 84 a safe withdrawal rate of  4 or even 5% should be no problem.  Which comes out at 62-78k plus the 45k passive should cover her reduces expenses of 95K.  As she ages the withdrawal rate can go up but her legacy goes down.