Q.
My father is 83 and is moving into a senior care center so we just sold his house for $600,000. He has a couple of rental properties that are producing income, but really no portfolio except for the $600K. He needs $3,000 a month in addition to what he gets from the rental properties which are rented to stable tenants. None of his heirs need an inheritance. How should we invest his money? CD returns are pathetic and I'm leery of our banker's suggestion– an annuity.
A.
Great news! Your father has several options and all of them are good, mostly because it is a large nest egg and a small income need. While the income need/portfolio size ratio (6%) might not seem large to a 60 year old, it is quite good for an 83 year old. Let me explain why:
Standard Investment Portfolio
Remember the Trinity Study, with its 4% rule? It basically said that if you want a very high probability that your money will last at least 30 years in retirement, you can only spend about 4% of it a year. However, an 83 year old isn't going to live 30 years. In fact, an 83 year old has a life expectancy of 7 years. Certainly planning for 15 seems plenty conservative to me. So how much can you withdraw from a portfolio if you only need it to last 15 year? According to the Trinity Study, 6-7%. And it doesn't even matter that much how aggressive the asset allocation is as long as it is at least 25% stocks. Per the Trinity Study, at 6%, the likelihood of lasting 15 years ranges from 94-99%. At 7%, it's a little lower, but still pretty good–77-87%. Well, 6% of $600K is $36,000 a year, or $3000 a month. There you go. Problem solved. In fact, if you don't need inflation adjustments, you could just put the money under a mattress, pull out 6% of it a year, and you'd last almost 17 years. That's with no earnings at all. So just using a standard stock/bond portfolio is one great option for your dad.
If you want to keep it really simple (which can be very useful because you don't need an investment advisor's help to implement it), you can just take that $600K and put it all into a Vanguard Target Retirement Income Fund (30% stock/70% bonds) or the Life Strategy Income Fund (20% stock/80% bonds) both of which essentially own all the stocks and bonds in the world. It doesn't matter that it is in a taxable account since you'll be spending 100% of the income every year. They both yield around 2% right now, so spend that 2%, and then sell 4% of the fund each year and that will give you the 6% you need for his spending. It's possible that a more complex portfolio might work better, but it is also possible it might work worse. One thing to keep in mind is that if you hire an advisor, his cut has to come out of that withdrawal. So in the first year, that means your dad gets 5% and the advisor gets 1%. Technically, paying the advisor 1% doesn't lower your SWR by a full 1% over the long haul, but it certainly lowers it by 1% that first year.
Start em young — The WCI employees earning their pay.
Buying Security
However, there is an even better option here. At the age of 83, even a healthy male can purchase a Single Premium Immediate Annuity (SPIA) that yields 13.20%. 13.20% of $600K is $79,200 a year, or $6,600 a month, twice as much as he needs. The downside? Well, if he dies next year, the money is gone. That's okay, since no heirs need it, but it's probably buying insurance you don't really need. It would be smarter to only annuitize as much as you need- $300,000. That will produce an income of $39,600, or $3,300 a month, enough for his needs and to spare. Plus, the other $300,000 can keep growing or even be used for lump sum purchases that may be needed. And if they're not needed, the heirs won't complain.
This question (and answer) illustrates an important concept–people don't live forever. Retirement planning at 50 is very different from retirement planning at 80. Here are some of the differences:
- Annuities pay more
- Inflation will have less of an effect on your financial life
- Your asset allocation doesn't matter as much
- Your house, if sold, can cover your rent for the rest of your life and then some
- You spend less in your 80s (at least until you get sick) than you do in your 50s and 60s
What do you think? What would you recommend to your family member in this situation? Investments? Annuities? Both? Comment below!
Definitely go with SPIAs (immediateannuities.com) over bonds, and especially CDs! You can also add a cost of living adjustment if you’re worried about inflation. It certainly doesn’t feel like inflation will be a major factor in the next 10+ years now, but who knows if or when that might spike.
I would lean towards a more aggressive investment allocation (especially if you purchase a SPIA with a portion of the money). 75% stocks still gives you a 97% success rate with a 15 year horizon plus it gives you a better chance of having assets to cover long term care costs later in life.
Even though the heirs might not “need” an inheritance, why bother allowing withdrawals and inflation to eat up $600k!?
If the heirs don’t ‘need’ the money, it’s likely they could help out with their father’s expenses should he somehow run out of money for his care during his remaining years. As him running out of money is highly unlikely given his age, it would seem that investing the money fairly aggressively would be the best plan. While the direct heirs ‘don’t need’ the money, something tells me someone in their family (grandkids, grandkids kids) could benefit tremendously from a six or seven-figure windfall when the time comes.
He’s in very good financial shape, and has options. I might opt for the SPIA with a portion of the money if and only if he is in great physical shape, and his family history give him a decent chance of living another ten years or more.
Applying the KISS principle, I might just put half in a total stock market fund, half in a total bond market fund, set up automated monthly $3000 withdrawls and rebalance annually.
Best,
PoF
Question….what about his social security? I dealt with this issue with my dad. He developed macular degeneration combined with insulin dependent diabetes. He would not let me invest his money in mutual funds. He did not understand the stock market. He did not trust anything but CDs and money funds. I think this is pretty common in older people. He worried about bank failure so he had CDs in multiple banks. With this example you might want to consider that annuity income is guaranteed to a certain level in each state. Again this comes up if insurance companies start to fail. Older people have lived through the depression are really worried about this. Another thing about annuity income it seems to me is its simplicity. It is like a pension or so it seems. An advantage for when one gets confused I think.
I think this was all in addition to what SS provided as I recall. But it’s been a while since I wrote it.
The White Coat Investor recommending an annuity? Oh how the mighty have fallen.
At least since 2012 (actually much longer.)
https://www.whitecoatinvestor.com/spia-the-good-annuity/
There is nothing new under the sun, only the WCI posts you haven’t yet read.
But I agree with your general premise that most annuities are garbage. Read this book before buying one:
https://www.whitecoatinvestor.com/the-truth-about-buying-annuities-a-review/
13.3% return on an annuity???
It’s not a return. Part of it is return of principle.
I have never seen such bad advise and opinions. Another question is what the heck he had invested in all those years, and why in the world he should by annuity at this point. 600K cash, + rental properties + SS income and 86 y/o, needing 36K/ year.
What he needs to do is to give away as much of his money as possible and as soon as possible before he has a stroke ,or breaks a hip and has to live in a nursing home for next 5 -10 yrs. The state will take every penny from him, including rental income/property and SSI benefits at tune of 80 – 120 K annual expense for NH before medicare kicks in.
So many, and I mean so many hard working americans, who have done all the right things, worked hard, paid taxes and saved, get screwed at the end. why, Why and why the hell people don’t prepare for these eventualities is shocking to me. Now with look back period of up to 5 yrs in some state, should start planning in your 60’s.
At this point, he should go to vegas, buy gold from local pawn shop, or ….
What?
Sounds to me like he could cover the costs of a nursing home to me. Why in the world would he give away his money to be eligible for Medicaid? Might as well spend down if forced to, no sense in doing it without being forced to.
For him it is too late to do anything. Well, expect for going to las vegas and all …
If he goes to NH or ALF with mod to max assist, he will spent close to 100 k / year. If he lives past 6 years, he will get medicare and die broke in institution. Nothing to show for all the hard work. Nothing for family or charity, etc. It would be a shame if his kids / relatives are struggling or if his grandkids have college debt. With some planning he would have so many options.
This is another scenario where whole life insurance would have served him well
Nonsense. You need to get off your whole life kick. Whole life would not have solved any of the issues he faces. If your big concern is LTC, he could buy LTC insurance. Frankly, given his income, he can probably self-insure that. If he gets the SPIA with half his stash, he’s got the rental properties plus $3K a month in guaranteed income plus social security. That might be $5-8K a month. So $60-96K a year. Plus a $300K portfolio from which he can probably easily spend 6% (probably much more if he is in a nursing home) a year, another $18 a year. This dude ain’t running out of money, even with a long nursing home stay.
And, he is still leaving something for his heirs…whether it is $3K/month or the value of those rental properties…
Good conversation
Mr. WCI, you are assuming that he wont go to NH. If he goes to nursing home, then everything that he has, up to last penny will be cashed in and paid toward NH benefits. He will die broke. The town / coast I live in self payment to NH cost 130K / year.
I don’t care much about whole life insurance. But in this instance, it would be his best option. Because the cash value is not considered an asset under Medicaid guideline. If he continues to do well, then he can take annual loan of 36 K (wont impact his taxes or SS payments). If he ends up in a NH, and diet in NH, his family will inherit the remaining policy value.
As far as LTC. Biggest fraud ever allowed by insurance regulators
WCI points out in the post that the life expectancy of an 83 year old is 7 years. I would wager that the life expectancy of an 83 year old who has to enter a nursing home is significantly less, particularly if they have reasonable advanced directives. Given this, and the fraction of the nursing home expenses which would be covered by Social Security and rental income, I sincerely doubt that he will die anywhere close to broke.
By the way, Sam, it is Medicaid that provides nursing home care to the indigent, not Medicare.
The great part is he has money, so he has options. I like the idea of an SPIA with a portion of the money to cover his monthly expenses and then the balance in a Vanguard fund to continue growing over time. The benefit of this plan is certainty and simplicity. No worries about covering monthly expenses and a little left over to give to his heirs in the future or to cover unexpected expenses.
I think some people have a vested interest in fear mongering the cost of long term care in this case. If this guy gets sick enough for a nursing home his stay will not be long at 83. He has the resources to pay for it.
nonsense. many people spent decade or more in NH’s. Looks at the statistics. Longer in fact just b/ by law and regulations they get timely care.
Average length of stay is 2.4 years. 65% die within one year. Only 10% have a stay longer than 5 years. I agree there is a lot of fear mongering out there.
http://news.morningstar.com/articlenet/article.aspx?id=564139
892 days (2.44 years): Average length of stay for current nursing-home residents, 1999.
272 days (8.94 months): Average length of stay for discharged nursing-home residents, 1999.
38%: Percentage of nursing home patients who will eventually be discharged to go home or to another setting.
10%: The percentage of people who enter a nursing home who will stay there five or more years.
65%: The percentage of people who entered a nursing home who died within one year of admission.
“Average length of stay is 2.4 years. 65% die within one year. Only 10% have a stay longer than 5 years. I agree there is a lot of fear mongering out there.”
Averages are very misleading. As you dig deeper you realize the enormity of the problem. Many and I mean many people who go to NH and then leave after “average length of stay of 2.4 years” are again admitted to NH. So the percentage who “died within one year of admission ” are usually, but not always repeat admissions to NH.
Also, their is big push by states to pay families or PCA to avoid NG placements. In fact, more and more people are able to live / die at home b/ of these programs. For these patients maximum PCA coverage in some states is cut off at 14 hours, and in some states Medicaid pays up to 24h PCA coverage. In these situations it cost the state / Medicaid around 50 – 70 thousands per year.
In my practice, I deal with many end of life care issues. I am telling you that many if not most families are shocked to hear how difficult it is to obtain any assistance from the state if patient has any money.
Recently, a young women in her 40’s who will never be able to return home, spent 3 weeks extra in the hospital, b/ it took that long for her mom to liquidate 401 K and IRA with total value of < 2000K before county approved her for medical assistance / nursing home placement.
So why should the state pay for something if the person has money and can pay for it? Just so they can leave something for the kids?
Absolutely. These people who have accumulated material wealth are the back bone of this country. They work hard all of their lives, and save and save and pay tax after tax. But then the government takes it all away from them again. While many get free ride all the way.
Also, I am not talking about morality of it. Is this not a financial planning blog?
Is the government taking it all away or the nursing home?
It’s not the government taking it away, the grandpa is spending it on care. And no, I don’t think the government should have to pay for this millionaire, or if not million pretty close, to stay in a nursing home if he needs its.
Plan for the foreseeable future, but lets leave all the speculation out of it. I’m not going to waste my life and money planning for all possible outcomes as it just can’t be done. At some point you have to decide what is most likely to happen and be done.
Why didn’t she use that $2,000,000 to pay for the nursing home? 🙂 Just kidding. I know what you meant.
There are always horror stories, but data is not the plural of anecdote. You assess the risk, decide if you are willing to run it or want to insure against it, look and see if there is a reasonable way to insure against it, and then press forward. But sitting around wringing your hands about whether you’ll be in the 0.5% (or whatever) that may need decades of nursing care isn’t going to do any good.
sorry, it was 2K
Yes, planning is best and that should include end of life issue / illness and impact on finances.
“Is the government taking it all away or the nursing home?”
Yes, in this case it is the government who will force you to sell assets and withhold all support until you are broke
That’s an interesting perspective. The government isn’t forcing this family to do squat. In fact, the government is offering to pay for nursing home care if they run out of money paying for it themselves.
By the way, there is no “government” pot of money. It’s just us taxpayers and those we elect to represent us. The government doesn’t have its own money. I think the general idea behind the system is fine as it is. If you need nursing home care, you pay for it until you run out of money. At that point family can step in and help. If they cannot or will not, then society can provide some basic level of care consistent with preserving human dignity but without bells and whistles. Don’t want that level of care? Save up more money or buy insurance.
OK, I’ll get in one more time. I have to agree with WCI, the government is providing free insurance. Plan poorly and run out of money and they will pay for your care. Plan well and have money left over and they won’t pay for anything. Sounds like a great safety net and one more reason to spend a little more while you can enjoy it.
“the government is providing free insurance.”
Ricky, it is only free if you know how to play the game. Someone like you or WCI will be paying 100% of your bills, while government will pay 100% for people who maybe much richer then you guys may ever be.
Unfair? Sure. But don’t hate the players, hate the game.
I would invest the money aggressively. The 4% withdrawal rate accounts for increasing withdrawals due to inflation. If you’re comparing this to a SPIA, remember that the annuity is generally not inflation indexed, so the comparable safe withdrawal rate will be more that 4%. In fact, the rate at which you can withdraw the money for your average life expectancy is going to be the annuity payout, or greater that 13%. So if you stick with that 6%, your money is likely to last forever.
An annuity is just the flip side of whole / cash value life insurance. I would rather cut out the middleman and invest the money myself.
Also, I agree with the poster ZC above who said that the heirs could help out. If I were an heir, I would offer to back up the investments in the event of a shortfall. The money would be earning more in the interim, and as an heir, I would be more likely to come out ahead. The children are clearly involved in the welfare of the parent, so if there’s a shortfall, it appears that the children would be covering the difference anyway. That being the case, they might as well be able to share in the much more likely up side.
I agree. The heirs will likely be left with twice as much money if they agree to serve as a backstop in the event of an extraordinarily bad sequence of returns so that he doesn’t feel it necessary to purchase the annuity. It sounds like they would be in a position to do this. Sort of goes along with WCI’s previous post on generational wealth planning.
How I would think about it:
1. Real Estate: I would want a cost/benefit analysis of the properties. I would not just plan to keep them. If there are large expenditures or assessments coming up, I might consider selling and adding to the pot. I would not assume a 100% occupancy rate. For the rest of my thought process though I will treat them like the sacred cows the rest of you have.
2. Liability Matching: Here is where family life expectancy comes in. For me, I would plan on 10 years of expenses in safer investments. So 36,000 x 10 = 360,000. Which gives an safe asset allocation of 360,000/600,000 or 60% bond/40% stock.
3. Bucketing: I would want 2 years of expenses in cash. Yes, there is a cost to being in cash. But, the cost is less than the AUM fees of a financial adviser. The benefit is if I am wrong in the following assessment we are in a position to financially help my dad. Cash makes managing the money for someone else easier on my time which I am doing at no financial cost. So, now the portfolio looks like the following: 72,000 in cash (probably just a FDIC insured checking account, but if rates improve would reconsider). So now that leaves 600,000 – 72,000 = 528,000 to be invested. I still want 360,000 – 72,000 = 288,000 in bonds. So invested allocation becomes 288,000/528,000 = 55% bond and 45% stock.
4: Choice of Investments: I would use Vanguard Total Stock and Total Bond at the above percentages and call it a day. If I wanted more ease I would pick a Life Strategy or Target Date Fund close to these allocations. I would use withdrawals when necessary or convenient to rebalance back to these percentages. I would reconsider these percentages going back to step 1, if a major life change occurred like needing a nursing home. With the market at all time highs right now, I would probably dollar cost average into stocks over the first year which would also give me time to get used to this new role.
Some of the best advice on this comment section yet. Some people, particularly financial advisers, seem to make this to hard, or use fear to scare people into things they don’t need.
On another note, can I sign my father in law up for the Dr. Mom financial review?
Funny. Thanks. I like building the plan like above so I see the why of the plan better. Then I make sure it is within all the SWR data based on Trinity Study.
I agree with selling the real estate. I also wonder if he has an adult child to help him. If he has never invested before 83 I foresee problems.
I might or might not sell it depending on the details. But, if I was spending my time managing it, my bias would be to sell when market was favorable.
My parents (89 and 81) also rely on rental income for their retirement. They have 3 rental homes in LA and Orange County, bringing in about 6500/month. They intentionally rent at below market rates, with the hope that it keeps the vacancies at a minimum. So far, so good. No vacancies. They refuse to sell until one of them passes away, waiting for their so-called step up in basis. They’ve shopped around for the range of facilities (assisted living to SNFs), and we hope they never go to one. Any of the three kids would prefer to have them live with us.
Good example of when not to sell rental property. Do you have plans in place for how they will be managed when your parents no longer can do it? My parents and I discuss ad nauseum (by their choice, not mine) what I will do when I need to take over for them. I watched how difficult my grandparents made it on my mom. We plan to avoid a repeat as much as possible. This post didn’t give enough info to decide on its particular rental situation. No one else even brought up the issue of the rental properties. We have watched family members make poor decisions related to rental properties. So, again, I definitely am biased against them, but recognize for many people they can be a great investment. I am a firm believer of making your situation as easy and simple as possible for the people that will be helping you when you can no longer DIY.
Agreed not enough info on the rentals to know if good idea to sell. I have a bias against them because my husband has several and they are a pain in the proverbial butt.
Small town Alabama is definitely a different rental market than LA and Orange County. Some of my bias definitely comes from our location.
Sounds like our parents love to discuss similar topics. My parents always bring up the issue of inheritance whenever I come to visit. They specify which rental each of the three children will inherit, and how much each grandchild will inherit. If one of them passes, the other might consider an assisted living facility (or better yet, move in with one of the kids). If they do go the assisted living route, they will sell the primary home (~800k) and use the funds for that, and to pay for other ongoing expenses.
They used to own a 4-plex at the beach, and managed it themselves. Recognizing that they can no longer do this, they did a 1031 exchange and bought 3 homes closer to their home. So far, they use a combination of trusted plumbers, painters, etc, to do the work. Fortunately, my siblings live close by. One is a nurse and the other a CPA, and they will likely manage to properties until the second one passes. Sounds morbid to discuss, but the parents love it.
The “discussions” seem to bring my parents peace, so I mostly just listen. Glad to hear yours have a plan for the rentals after their deaths. Be sure they have it in writing in their wills. My parents lived with us for 18 months while they built a house down the street from me. The experience was interesting and challenging for everyone-them, me, spouse, and kids. We would do it again in a heartbeat though. Good luck as you enter this stage of life when the child takes over caring for the parents.
KISS is good protection against cognitive decline.
Happy trails, cowboy Mike
This forum does an excellent job of advising those who are not at or near retirement; it fits with the present financial circumstances of WCI and seemingly nearly all of its readers. This article now ventures into retirement planning, and it’s not pretty. What is needed in this situation is a comprehensive understanding and analysis of the father’s relevant financial and personal matters. The answer to the initial question is that there can be no answer until such analysis has been completed.
I am not suggesting hiring a financial advisor, but this might be desirable depending upon the circumstances. I am absolutely not suggesting hiring an advisor who charges a percent of AUM fee.
While more information usually does help to give better advice, the idea that no useful information can be conveyed without having all possible information is probably overly extreme. It would not be very helpful for me to reply to a question like this with “Go hire a financial advisor or send me copies of all relevant financial and personal information.” Far better to have a discussion mentioning options and provide the usual caveats.
I disagree. A sit down with a qualified advisor, going over all the relevant data for, say, a $2000 fee would likely be money well spent. Avoiding exorbitant %AUM fees and incompetent advisors is essential. Retirement planning is much different than pre-retirement planning.
You disagree with what? I don’t have a problem with someone getting a formal financial plan.
Are you saying the blog post should have read like this:
I don’t think I’d have much readership if I wrote posts like that. I’m not sure you understand how blogging works.
Probably not a good answer since I’m not a FA, but I do know a good bit about retirement planning. Look at all the comments. They all differ, but any one of them might be appropriate depending upon the circumstances.
I understand this blog; it is excellent for they type of planning which it does; you give outstanding advice for pre-retirement HNWI. However, no advice is better than retirement planning advice that is not based upon a full understanding of the financial and personal situation of the retiree.
WCI speaks from the standpoint of a fine EM physician. Make the best decisions you can with the information you have at the time and you can adjust moving forward as more data becomes available or things change… I agree there is certainly more than enough data here to start planning, and I don’t think any of the advice above – aside from the WL posts – are bad plans, even if they differ in how conservative or aggressive they are. They all improve the current standing of the subject at this point. It’s easy to sit back and do nothing because you don’t know what the absolute best answer is, but that is rarely the right thing to do, especially in this case.
That is why retirement planning differs from pre-retirement planning. With retirement planning you do have the facts available to make better informed decisions. Starting with the Question data, I could easily come up with a dozen possible financial scenarios, each of which would call for very different investment advice. Furthermore, I could add another dozen personal circumstance scenarios, which again would suggest alternative approaches. In this case a couple of hours of digging into the facts could result in immensely different advice. Sitting back and doing nothing is not the solution — obtaining adequate data and acting on it is.
Sounds like a fascinating guest post.
Funny. After you shot down my last suggestion for a guest post on retirement planning, I concluded you were absolutely right to do so. This blog does an excellent job in its particular niche — financial planning for practicing physicians and HNW. I have noticed that your forum doesn’t have a single topic devoted to retirement planning (as distinguished from retirement plans). My advice to you is stick with what you know best, and leave retirement planning to others.
Thank you for the advice to devote more time to retirement planning instead of retirement plans. The guest post criteria are easily found for anyone that would like to submit one. I don’t recall why your particular submitted post was “shot down” as I turn down numerous every week, but presumably because it did not meet the criteria.
As I said, you were absolutely right not to post my article on retirement planning. Actually, my advice was to keep up the good work you are doing on pre-retirement financial planning and not enter the area of retirement planning.
I know. And I plan to keep writing about whatever I want, just like you do.
The thing I don’t like with this is that the e-mail asked a specific question and I was answered. They may go out and get more opinions if they want, but it drives me crazy when I ask someone a questions and they answer me with “well, what you really should be asking is ….” It feels like I’m talking to politicians.
Sorry, spell check and an early morning are a tough mix. Hopefully you can read between the spelling.
Plenty of people at or near retirement post on this blog
Yea, I’m near retirement I suppose if we measure it by financial independence.
Good conversation
Mr. WCI, you are assuming that he wont go to NH. If he goes to nursing home, then everything that he has, up to last penny will be cashed in and paid toward NH benefits. He will die broke. The town / coast I live in self payment to NH cost 130K / year.
I don’t care much about whole life insurance. But in this instance, it would be his best option. Because the cash value is not considered an asset under Medicaid guideline. If he continues to do well, then he can take annual loan of 36 K (wont impact his taxes or SS payments). If he ends up in a NH, and diet in NH, his family will inherit the remaining policy value.
As far as LTC. Biggest fraud ever allowed by insurance regulators. I wish him well
Tim it should Dr WCI.
Great article if only to point back to your earlier SPIA post.
Here come the whole life salesmen!!!
Funny how they can show up just about anywhere on this site isn’t it?
I’m an experienced “passive” residential real estate investor. I am planning on using the cash flow from my rental portfolio to cover a significant percentage of my expenses in retirement. I think I can present the realities of real estate ownership in a fashion that will be helpful to others.
First – there is no such thing as truly “passive” real estate ownership. At any time you may need to deal with repairs, find new tenants, etc. If you don’t enjoy these activities (or can’t handle them well as you grow older), finding and hiring a good property manager is essential.
Second – if you have made realistic projections for vacancy, maintenance, repairs, repairing tenant damage, etc., you can forecast your average long-term cash flow fairly realistically. But you must always have cash reserves to cover short term needs. You never know when a tenant will move out, a roof will need replacement, the A/C or furnace will break down, or various other things will happen that require significant cash outlays.
In the case of the poster’s father, I would suggest:
-Enjoy the cash flow as long as your current tenants remain in the property (I had one set of tenants stay with me for 26 years), but be prepared to take action when they move out. (Perhaps they will want to buy the house at some point; it can be a win-win to offer it to them at a good price or terms.)
-When you do have a vacancy, you will be faced with all the realities of managing your property. Be prepared to screen/qualify prospective tenants and make repairs. Perhaps a family member can help, or that might be the time to hire a well-qualified, well-recommended property manager. Or that could be an ideal time to sell (using a real estate agent who is willing to coordinate any required fix-up).
-If the properties are owned free and clear (or with a small mortgage balance), and the father is charitably inclined, creating a charitable remainder trust (CRT) and donating the properties to the trust may be a good alternative. This is especially true if the properties are highly appreciated. You can get a significant charitable deduction, don’t have to pay the capital gains tax on the appreciation, and can plan on 5-6% income from the trust for the rest of your life. (Your local community foundation may be able to help you learn more about this alternative.)
Excellent way to think about the real estate portion of this portfolio. Thanks for the thought process.
There are so many good recommendations on this topic. It is very interesting how each and every one of them except the whole life policy would work. That’s because this situation is overfunded so to speak. At the end of the day if this person wanted to, they can hide the money underneath their mattress and just pull $3k a month for the next 13 years and 7 months considering 3% inflation and no growth. If we put that cash into an Ally 1% savings account at 3% inflation that cash will last 14.5 years. Using 5 year CD ladder at 2% the cash will last 15.5 years.
My point is that this person is very likely to have money left over no matter what they choose to do as long as they don’t waste it all on some overpriced advisor or insurance salesman.
I think Dr. Mom’s plan to have 2 years expenses followed by 10 years in bonds is about as safe as you can get.
Selling the real estate might be a good idea unless the appreciation is very high, and then handing down to heirs is probably the best way to preserve the wealth.