I Finally Did It!

[Gas_Doc]

After years of planting seeds here and there, I was finally able to sit down with my parents and make my pitch for them to drop their 1% AUM, actively managed fund & individual stock-picking "financial advisor" in favor of a fiduciary, fee-only advisor who will steer them toward index funds and lower fees. I think it went as well as expected, but only time will tell if they will ultimately make the switch.

 

Has anyone else had this conversation with their parents and how did it go?

[artemis]

Hurrah!  That's a conversation I won't be having with my own parents, as neither of them is invested in the stock market.  They're afraid of it.  CDs and annuities are what's keeping them afloat.

[jhwkr542]

My family is oddly private about finances. My mom and her sister seem to have an unspoken competition over who has nicer stuff. They just found out that their mother/my grandma is worse than broke. Lost her$250k retirement fund in 2008 when a combination of the market and her gambling wiped it all away. Apparently has maxed out credit cards, can't even afford property taxes, can't pay to fix her car, and is still paying for financing on a kitchen remodel from a decade ago on a house that maybe is worth $60k. My wife and I had been trying to convince my mother that she had a gambling problem and had become broke. It fell on deaf ears and now is a much bigger problem than it would've been. All because nobody in my family discusses finances.

[Gas_Doc]

jhwkr542 wrote:

My family is oddly private about finances. My mom and her sister seem to have an unspoken competition over who has nicer stuff. They just found out that their mother/my grandma is worse than broke. Lost her$250k retirement fund in 2008 when a combination of the market and her gambling wiped it all away. Apparently has maxed out credit cards, can’t even afford property taxes, can’t pay to fix her car, and is still paying for financing on a kitchen remodel from a decade ago on a house that maybe is worth $60k. My wife and I had been trying to convince my mother that she had a gambling problem and had become broke. It fell on deaf ears and now is a much bigger problem than it would’ve been. All because nobody in my family discusses finances.

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I'm sorry to hear that. In general, my parent's have been pretty private about finances as well, and this was the first time I've had the opportunity to take a look at the "books." That being side, they are in pretty good financial position largely because they have been good savers for a long time.

[The White Coat Investor]

I think I started talking to my parents in about 2005. I showed them what they would have had if they had just invested in stock and bond market index funds from the time they hired their then current advisor in early 2000 (no kidding) to then. He had dramatically underperformed. So they moved 2/3 of their account to Vanguard pretty readily. They left 1/3 there as it was managed by a guy doing some "special situations" thing. His performance was fine at that point, especially compared to the main guy, but I helped them track returns and benchmark them and see what was going on. After a couple of years they rolled that over to Vanguard too. It's invested in a 50/50 reasonable mix of index funds and I help them not screw up the plan every now and then. They really have little interest in anything but the results, which is fine. I'm happy to know they have "enough" for what might come their way. They could probably self-insure LTC but my mother is adamantly against it as she feels dad may go in a nursing home and clean her out. No big deal, the premiums aren't too bad and they can certainly afford them. In fact, they could probably spend more than they have been. They basically just lived on the pension until age 70 and now live on the pension and Social Security and blow the RMDs on fun stuff.

They got a free second opinion about a year ago as part of their Flagship thing at Vanguard and the CFP there basically told them what they were doing was fine. (Big surprise, right?) Technically, I guess I'm their investment manager, but no kidding, I spend less than an hour a year on the task.

[wideopenspaces]

I'm pretty sure my parents have blown any retirement funds they had on lawyers for my brother who is continually in and out of jail for drug/theft charges. I found out they recently refinanced the home they've lived in since the early 90's to a 20 year mortgage. The only potential saving grace is that my dad, a tenured professor, will work until the day he dies, if able. Good times.

[Osiris]

Good for you.

I have never had that conversation with my parents: I always felt my father did a great job investing and had a better understanding of how the finance and markets  worked that I did. My mother after my father died at 50 just kept her investments in bonds. I think I am smart and should do better but they did great.

I hope your parents are happy how they did and they feel you added to their happiness.

[EDDOCMOM]

Unfortunately I had "the talk" with my parents a month ago when my dad had a large L MCA stroke.  Miraculously, he's doing very well and back home and working.  He's young (late 50's) and my mom has zero ideas about finance.  For the 5 days he was in the hospital my husband and I dug into their finances and retirement and health insurance.  He does have long-term disability insurance.  Given he's now had some major health problems, I'm trying to convince them to get LTC insurance.  I *think* I have got them to cancel their Whole Life insurance and convinced them that they probably don't need term anymore since all the kids are doing OK and my mom can live on their savings.

How do you tell if they're doing well - especially when my finances and theirs are worlds apart?  For instance - my dad has $200,000 in retirement, plus a pension after age 65 and they're planning on him being able to work until then (God willing).  His working life he's made between $14,000 and now $50,000 a year and he's currently saving/investing $2000 per month since they don't have much for living expenses. I'm a doctor and my sister is a lawyer so we've got some really skewed financial numbers and I'm not sure what my dad *should* be at.  My mom admits they've always spent any extra money.  It's hard for me to relate when my income is in the $400's and my retirement savings are already above $200K.  Any advice on how to judge this and other suggestions for them?

[Gas_Doc]

EDDOCMOM wrote:

How do you tell if they’re doing well – especially when my finances and theirs are worlds apart?  For instance – my dad has $200,000 in retirement, plus a pension after age 65 and they’re planning on him being able to work until then (God willing).  His working life he’s made between $14,000 and now $50,000 a year and he’s currently saving/investing $2000 per month since they don’t have much for living expenses. I’m a doctor and my sister is a lawyer so we’ve got some really skewed financial numbers and I’m not sure what my dad *should* be at.  My mom admits they’ve always spent any extra money.  It’s hard for me to relate when my income is in the $400’s and my retirement savings are already above $200K.  Any advice on how to judge this and other suggestions for them?

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To answer your first question ("how do you tell if they are doing well?"), my parents, like WCI's, told me they basically live off my mom's pension as well as their social security. Their retirement funds, which are admittedly pretty solid despite their poor financial advisor decisions, are extra.

 

As far as your situation, are they really saving $24k/year, or 48% of their gross income, from a $50k annual salary? If so, I'd say that is really good. If they are living on 25k annually, they would need $625k in retirement if they go by the "4% rule" and expect to continue their current standard of living/expenses. The tricky part will be if your dad will actually be able to make it to 65 so that he gets full pension. I have no idea how much the pension would pay out, but I assume that would reduce, along with social security, 'their number' significantly.

[Gas_Doc]

Reading and responding to EDDOCMOM's comment got me thinking about another part of my conversation with my parents. Because they basically live on my mom's pension as well as social security, they have a decent nest egg in the form of their retirement accounts that doesn't have a specific purpose. I asked them what their goals were for that money (don't die broke vs generational wealth, etc) because that would radically change my opinion on how they should invest it. I guess I'm just curious if anyone here has parents who were open with them about wanting to create generational wealth, or who they themselves hope to create generational wealth for their children/grandchildren?

[VagabondMD]

My parents are divorced. They both have enough money. They may not manage it as I like, but they will likely not have financial problems for the rest of their lives.

 

The inlaws are a financial disaster, a black hole, a train wreck, but fortunately, other's seem to be handling it, and I am grateful for that.

[Lithium]

My Mom has a net worth of over $6 million and entrusts this to a family friend FA, who I think is fee-only.  She used to gift me money to an account he managed, and it took me a couple of years to develop the courage to pull it out.  I wish I had saved the statements.  I can't say how good or egregious it was in retrospect.  I have had the conversation with her several times about how I'd be willing to do for free what she pays presumably more than $50,000 a year for.  I could take it further and compare my returns with hers, but it is pretty pointless, because I literally don't think she cares that she is throwing away that much dough every year.

My Dad has always been a very interested investor who, growing up in the 80's and 90's was glued to CNBC and Nightly Business Report.  But I don't know how much he's really worth or how well he really did in the market (though he did well enough to retire comfortably on).  What I do know is he always seemed like an active investor and a soft market timer, and it was this outlook that scared me away from investing until 2010 or so.  How do I know where to start about which stocks to pick, when to buy them, when to sell them, etc?  I didn't really get comfortable with it until I found sites and books that started to demystify the voodoo.

[ticker]

My (widowed) mother has her investments with one of my late father's CFA friends, with whom I'm quite content.  She has retirement accounts, multiple trusts, taxable investments, a very small pension, inherited property, etc., so there is no way she would feel comfortable going it alone or having a Vanguard rep she never meets in person.  This guy probably meets with her at least 6 times a year and takes another 20 email/phone call questions a year.  AUM fees work out to about 0.5% on a 7-figure portfolio.  As a company policy, this advisor does not sell any policies that generate a commission or any investment products with a load.  While her portfolio is more complicated than I would choose for her, the allocation is very reasonable for her age and situation, returns have been good (better than my simple Vanguard set-up when correcting for our different allocations... darned international), fees aren't abysmal, and she is assured by the hand-holding.

I've explained why my measly and simple portfolio isn't with this advisor, but I would never encourage her to leave him.