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What to do with retired parents' windfall?

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  • What to do with retired parents' windfall?

    Thanks to WCI I feel confident in my current DYI plan and just lurk on this forum to learn new things. However, my parents need help.

    They are classic UAWs by Millionaire Next Door terminology, no real retirement savings to speak of. (But did invest heavily in their 3 kids- 2 physicians and a dentist). Thanks to the market, after selling their home, office building and practice they were able to generate a revenue of about 500K after tax and have about 100K in cash, even after buying a smaller retirement home outright.

    They are now retired, both in late 60s, own their new retirement home and are debt free. What should they do with this approx. 600K windfall to make it last as long as possible? My brother and sister as well as myself can help them once they run out of funds, but we would all like them to live as independently as possible, and my parents feel the same way.

    What do you guys think? Thanks in advance.

  • #2
    Do they need this money directly or anything that might derive from this money (dividends, capital gains, etc.)?  What is their annual income from all sources (social security, pensions, retirement, etc.), and what are their total annual expenses?


    • #3
      What is their SS benefit?  600K at a 4% withdrawal rate is $24K/year.  Will that on top of SS be enough?  If so, invest in a 50/50 or 60/40 3 fund portfolio and call it a day.  With your ability to back them up, they should be fine if they can live on SS + 4% withdrawal.  Play with to investigate different scenarios for yourself.  How to Make Your Money Last by Jane Bryant Quinn is a great read if you or they are interested in learning more.


      • #4
        Thanks for all the replies. We need to sit down with them and figure out/budget their total expenses.

        Their monthly SS benefit is about 4K a month, which I think should cover most of their expenses, hopefully.

        Will check out the book and play around with firecalc.

        So a 50/50 taxable 3 fund portfolio seems like the best approach I guess? Thanks again.


        • #5
          "So a 50/50 taxable 3 fund portfolio seems like the best approach I guess?"

          Everyone's crystal ball is cloudy no matter what they say.  "Best" can really only be known in retrospect.  Your goal is to as reliably meet their needs and some wants as possible.  Google William Bernstein and Pascal's Wager.  They have an amount that can allow them to be more than just comfortable and independent depending on their budget.  Don't get too fancy and chance losing that ability.  Best wishes.


          • #6
            If your parents can't live on ss plus 4%(24k)they could do a second to die SPIA.  I put 600k with the ages being 68 for both into the calculator at immediate and got a quote of $3000/month.   So 64k versus 76k.  Downside of SPIA is no emergency fund.  Of course the WCI topic of the week is reverse mortgage.


            • #7
              Yeah I'd 2nd the annuity idea.  Plus, some way to ensure or protect against their cashing out.

              If they're really classic UAWs, then they will blow through that $500k before you know it.  There's no "safe withdrawal rate" planning since they will inevitably have some sort of recurring emergencies, decisions that they owe it to themselves, desires to help out others who come knocking, etc.

              A big 2nd-to-die annuity + social security should be plenty to live on, and even put away money into savings over time.


              • #8
                The annuity/SPIA idea is definitely worth looking into as well. I don't have a lot of confidence in them practicing frugality at this point. Thanks for all the advice.


                • #9
                  A 50/50 or 60/40 is going to have difficulty hitting 4% (its hard to hit 4% when 50% is 2 or below). Any more aggressive and they come into the sequence of return risks so theres no good answer there.