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Investing during retirement

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  • Avatar blephptosisbrow 
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    Status: Physician
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    Joined: 11/03/2018

    My mother recently retired at age 65. She has no debts and hasn’t needed to dip into savings. She uses a small amount of social security for everyday items.

    She has about $500 a month left over she is looking to use for investing. Can you invest in tax deferred accounts after retirements? Should she just invest in index funds and bonds?

    Trying to help her out but I am new to this myself.

    #170790 Reply
    Avatar Bmac 
    Participant
    Status: Physician
    Posts: 284
    Joined: 10/21/2017

    Need to have earned income for IRA/Roth. Nothing wrong with saving in a taxable brokerage account. A simple two fund portfolio with a total stock market fund and total bond market fund with a anywhere from a 60/40 to 40/60 allocation depending on desire for risk/return and goals for the investment.

    #170795 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1469
    Joined: 01/08/2016

    50/50 in vanguard taxable account, total stock and total bond

    Roth IRA would be nice for grandkids to inherit, if she doesn’t end up using it. (edit: if there is earned income)

    #170801 Reply
    Avatar Larry Ragman 
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    Status: Other Professional
    Posts: 490
    Joined: 08/30/2018

    Danger warning. Please get her to consider her risk tolerance. What would she do with a stock market index account if the market crashed 50%? If she would panic and sell, then do not dump a lot of her money into stocks. She will just lose a bunch of money and blame you. (OK, yes, some personal experience leaking through here.)

    I’d consider laddered CDs or bonds, perhaps inflation protected, although a total stock market bond fund is fine too. Then I’d start her dollar cost averaging into a total stock market index fund for long term growth and an inflation hedge.

    On the other hand, if she will sit tight during bear markets then I’m with Bmac and G.

    #170856 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    If she would sit tight in a bear market and doesn’t need the money, what is the purpose of the bond allocation? Seems to me she is buying bonds for the next generation. If she eventually will use the money, help her work up a simple plan for liquidity versus what she plans to pass along to the next generation and buy accordingly.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #170868 Reply
    Avatar Bmac 
    Participant
    Status: Physician
    Posts: 284
    Joined: 10/21/2017

    My mother recently retired at age 65. She has no debts and hasn’t needed to dip into savings. She uses a small amount of social security for everyday items.

    She has about $500 a month left over she is looking to use for investing. Can you invest in tax deferred accounts after retirements? Should she just invest in index funds and bonds?

    Trying to help her out but I am new to this myself.

    Click to expand…

    To be honest, I think we have all been a bit too hasty in our replies. We really don’t have enough information from the OP to provide the best advice. For instance, is your mother married? If so, does her spouse have earned income? If the answer to both is yes, then I was wrong because she could in fact invest in a spousal TIRA or Roth IRA. Other important information that would be helpful to know: Does she have an emergency fund? How stable is her income stream? Is she really living completely off of her social security? What is her risk tolerance? And what are the goals for investing the extra $500/month?  My advice would be quite different depending on these answers. Any of the above post recommendations may very well be appropriate (ranging from 100% CDs to 100% equities), but we really don’t know enough about the specifics of your mother’s financial situation.

    #170886 Reply
    Liked by hatton1, q-school
    Avatar blephptosisbrow 
    Participant
    Status: Physician
    Posts: 12
    Joined: 11/03/2018
    Disability Insurance

    Thank you for all the replies. Very good points and advice.

    My mother has all of her retirement in her 401K from work.

    Our house, cars, etc are paid for. She uses her social security for food and bills and enjoyment.

    She will only dip into retirement money in her 401K for fixing up home, large vacations (which they rarely take), or for large emergencies.

    She has money in savings for emergencies. Really this all started because she was “tricked” into buying whole life and term life policy. I explained to her that she didn’t need life insurance given my financial security and my fathers security. I also read through both plans and they were terrible. She asked me what to do with her extra money that was going to the life insurance so I suggested investing but she doesn’t know how. I also brought up long term care insurance but there seems to be a lot of controversy around this.

    My father works and probably makes around 70-80K a year but will retire this year. They are unusual and keep their finances separate so I really don’t know much about his but I am under the impression that he has enough saved to live comfortably given they really don’t have much expenses. Given how separate their expenses are I am not sure a spousal roth would work but can discuss when I see them.

    I think the best thing for her to do is start a 529 but given I haven’t provided grandchildren yet, I dont know if this is best idea (I’m 31).

    Long story, short… I think she has extra money she wants to play around with. I’m not sure she has any interest in buying CDs or bonds. I think a 60/40 vs 50/50 vs 40/60 plan that she could contribute to would be good. If the markets crashed it definitely wouldn’t cause a lifestyle change for her but would be annoying.

     

    Thank you all for your suggestions. If you have any further advice, please let me know.

     

    #171533 Reply
    Avatar Bmac 
    Participant
    Status: Physician
    Posts: 284
    Joined: 10/21/2017

    1. If her spouse is retiring this year, probably not much point in opening a spousal IRA.
    2. On the other hand, maybe now is time for her to rollover her 401k to a rollover IRA. Even the best employer-sponsored 401k is probably more expensive with less individual control than a rollover IRA at Vanguard or Fidelity.
    3. After doing a rollover IRA, perhaps doing some Roth conversions might make sense. Depends on tax status, etc.
    4. For the tax-deferred accounts, consider a target date fund appropriate for her age.
    5. If there is other money to invest, a taxable account makes sense. At Vanguard or Fidelity. Low cost index funds. 529 also a good idea, but maybe not until there is an actual grandchild.

    #171538 Reply
    Liked by hatton1

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