r/investing • u/jeffreyjames007 • 14d ago
Investing a lump sum at age 80
Parents won a settlement of 220k. They only have 50k in savings. Super healthy and active but obv in their last phase of life. Where would you recommend they put it? Perhaps a HSA? They don’t have much, live simply but would love for the money to last until they pass on so they don’t have to worry financially. Father makes about 80k year including SS.
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u/Suitable_Activity_85 13d ago
Muni bonds. Would make them another 10k/ year of income. They need to enjoy themselves!!!!!
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14d ago
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u/jeffreyjames007 14d ago
Thanks for the positivity. They had some hard times and were not always in this position.
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u/ghostofnickleeson 14d ago
One poster said CD ladder which is a good idea. You don’t want to invest more than 10% in the whole of the stock market because if there is a sudden downturn, you might have to wait 3 to 5 years to get back to where you were which is fine when your 50 but not when your 80. You should be very conservative I would put 80k in TLT which has a yield of 3.8% and will go up in price if interest rates fall( and it’s liquid, 100k in a 1 year tbill or CD, and 40k in to Phillip morris stock which has a high dividend yield and smokers aren’t disappearing in the next 10 years. You could also put that 100k in to 10 year bonds which are yielding around 4.3%. Those will also rise in price if interest rates fall and can be sold as needed for cash.
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u/Expensive-Sample-653 14d ago
I wouldnt invest more get a guaranteed rate of return through some government shit like a treasury or similar. Time not in their side so guaranteed income is more preferable
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u/superbilliam 14d ago
60% in SGOV and 20% in something like SCHD or DGRO. The other 20% in money market fund. Use dividends from the ETFs as income. Could also do JEPI or JEPQ as the dividend part, but idk about the volatility or if I would recommend that to someone I don't know who is 80+.
Not financial advice. I'm an amateur investor, but best of luck to you and your parents no matter what they do. I truly hope they enjoy their golden years and have many many more in good health!
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u/eddietheman11 14d ago
No pun intended but with high cost of living, inflation and high cost of real estate, your parents should start funding their eternal estate. on average it goes up about 12%each year per plot. if this was already taken care of, then your folks should start spending their money while they still can as you won’t be able to spend it in afterlife. book a cruise and travel while they still can.
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u/kohcacola 14d ago
I would consider real estate notes, typical pays out 2x CD rates. Better yet if they’re using government subsidized assets.
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u/ResistFlat9916 14d ago
10s and 30s. Live off the income. Best rates in years. No reason it should get any better. Maybe buy some Gold as well.
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u/Mr_Mouthbreather 14d ago
If they can make ends meet now, they should go out and enjoy it while they can.
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u/Pyromelter 14d ago
TIPS, treasuries, cd's, just go all income/cash. If you want to gamble take like 20k of that and buy whatever stock you think is gonna rocket.
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u/Equivalent-Pin-7146 14d ago
if they dont want to assume much/any risk I'd suggest something like XONE/XHLF or SCHO combined with a simple money market fund if they have access to a good one.
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u/luckystar26 14d ago
Take a little bit of that and hire a fee-only (meaning their only compensation comes from their clients, not kickbacks or incentives from putting your money in certain investment or insurance products), fiduciary (meaning they legally have to act in your best interest) financial advisor. Most financial advisors are not fee-only or fiduciary; you gotta specifically seek out these terms.
These are 2 nationwide industry groups exclusively for fee-only, fiduciary financial planners. You can find someone in your area (or virtually) who can either work on a project basis, hourly, or provide ongoing management — whatever structure you want, but they’re all held to those higher standards of service.
NAPFA.org
or
https://connect.xyplanningnetwork.com/find-an-advisor
Reddit’s great, but in a thousand posts you’re still never gonna get the most optimized answer for your overarching situation. Help them hire a professional with a little bit of that $ and get the answer that’s right for their life as a whole.
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u/ParkingPsychology 14d ago
They don’t have much, live simply but would love for the money to last until they pass on.
Hassle free, just get an annuity.
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u/518nomad 14d ago
Too little information to help here. What are their estimated annual living expenses? How much of those expenses is not covered by Social Security + Pensions?
As a general shot in the dark, I would say that building a TIPS ladder with that $220k makes quite a bit of sense right now given the interest rate environment. But that's without knowing any details about their situation. Good luck.
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u/jbrogdon 14d ago
just an FYI, life expectancy, in the US, at age 80 is 9.6 7.43 (Male) and 8.81(Female) years. that information may help you evaluate options.
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u/CuteCatMug 14d ago
At that age, no matter how healthy they are, they should strongly consider something low risk like CDs, treasuries, or HYSA
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u/Apprehensive_Two1528 14d ago
I’ve suggested my dad buy 1 voo every Friday.
there’s no imminent threat of market crash.
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u/Prestigious-Tiger697 14d ago
On public . com you can get a HYSA at 5.10%… but their treasuries are paying 5.33% and you have no state taxes on those. So what sounds better… lower rate with higher taxes or higher rate with lower taxes?
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u/kronco 14d ago
but would love for the money to last until they pass on.
Going to suggest this because others probably would not: A joint life annuity would probably pay around $1700 a month, for life (til the last one has passed).
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u/fuckaliscious 14d ago
And if they both die in two years, what happens to the funds they had?
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u/icantplay 14d ago
Gone, unless it’s joint life with a period certain, then the beneficiaries cal collect the payments for the rest of the period
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u/fuckaliscious 14d ago
Seems like an awful "investment" at 80 years old.
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u/kronco 14d ago edited 14d ago
If you are 80, the annuity will still take that into account and payout more then it would if the same amount was used to purchase an annuity at age 65.
The thing that makes retirement planning difficult is you do not know when you are going to die. So you have to plan it out assuming a very long life (well, you should). But you could still run out of money if you don't plan out long enough (longevity risk). To have enough money to live into your late 90's (example, pick your own number) you have to reduce your spending in all years prior.
But, a large group of people taken together do not have the issue of having to plan for a specific persons lifespan. Given X thousand of people you know what percentage are alive in 10, 20 and 30 years, etc. based on actuary data. You don't know when any individual will die, but you have pretty good insight into the group. That allows higher payouts up front.
Those that buy an annuity and die early still get to spend more in the years they were alive then if they planned it out til age 90s'+. Those that live longer get protection from running out of income to address longevity risk.
The contract you make when buying the annuity is to accept the above and join the "risk pool" to insure against longevity risk while also having an initially larger amount to spend each month earlier on . But, yes, you do have to buy it. For many people it is something they will be interested in.
I would not put all of it into an annuity, though. I do worry about inflation as annuities are not inflation adjusted (we still have Social Security to address that). But someone in their 80's probably has less inflationary risk then someone in their 60s when considering an annuity simply because they won't live as long.
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u/edoi2003 14d ago
I would disagree. For many older people who are retired, it can be very difficult to determine when you die. Therefore, you need to have some other guaranteed income sources besides social security or if you have a pension (whether defined benefit or contribution plan, but most likely defined benefit since that has been the shift since corporations do not want to take on investment risk) to cover any unexpected expenses that pop up, which studies have indicated are usually never enough. With people living longer due to medical breakthroughs and stock/bond strategies like risk-parity strategies being vulnerable due to high inflation, longevity insurance is the answer to that, which is also inflation-protected.
When you think about portfolio theory and the efficient frontier, think of income risk on the x-axis and PV of your portfolio on the y-axis. There was a great study I read that showed how coupling longevity insurance with some mix of stocks and bonds not only shifts the efficient frontier to the left but also raises that minimum variance portfolio point higher than just a focus and mix of stocks and bonds. While you may not "maximize" returns as if you were to just do 100% stocks (which would be ridiculous as a post-retiree), longevity insurance is a safe-play that offers peace-of-mind for older people who do not want to deal with investment volatility or unexpected life events that force them to sell assets or see assets drop in value (ex. help grandchild pay for college, health issues, etc.). Nobody wants to underspend in retirement because they do not know how long they will live, so this annuity is a very interesting product. Definitely some psychological hurdles with buying this product, but still one of the best products to have as a post-retiree. While it does depend on where you stand on assets post-retirement (too little assets means capital accumulation should be main focus and too many assets means longevity insurance is not as useful), definitely very interesting.
Sorry for rambling. I know a few HF/AM guys in NYC that do stuff in this space and it is just really fascinating.
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u/fuckaliscious 14d ago
Insurance companies know when you're going to die, they price the policies with high fees so they always profit.
They are trading on a customer's fears, the illusion of guarantee, when the customer can make the same investments without the high fees.
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u/edoi2003 14d ago
The insurance companies will obviously model the payout for all the annuities so that they profit, that is true. However, it is still extremely hard to model with so many variables accounting for when someone may die, so there will always be people who benefit from having this (payout to policyholder is more than what policy issuer expected). With that being said, you have to think about it from the policyholder perspective. If I am a post-retiree at the age of 65 and I want to spend X amount of money each year, there is no guarantee that you can spend X amount of money each year because there are so many factors that can affect your income risk. As said before, people have been living longer as technological advancements have allowed for this to happen; therefore, this increases longevity risk. Higher longevity risk means that you need to find income sources that can supplement for you living longer. Can you rely on social security and your pension plan as sources of income? Yes, but again studies from post-retirees have indicated that they are never enough to truly live a fulfilling retirement that they can enjoy (just not enough income, can only cover basic expenses). Finally, think about financial markets. Equity volatility can disrupt a retiree's financial security and do not have the luxury of waiting for market rebounds as a younger individual. I understand that most retirees are heavy bonds in their portfolios, but we have seen how higher interest rates posed huge challenges to the bonds markets.
The payout is guaranteed as this is an annuity. The payout is inflation-adjusted and will only stop until you die. I do not know what you mean by illusion of guarantee UNLESS the policy issuer goes bankrupt, which is why you buy from one with a large balance sheet. The point of the policy is that it is safe, you can enjoy retirement, and have some investment freedom. Yeah you give up some income initially, but you are hedging longevity risk.
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u/icantplay 14d ago
They need this money to last the rest of their lives, it’s less a concern about passing an inheritance and building generational wealth and more a question of making sure they have income to survive.
Different people have different goals.
The annuity option may not have the best upside, but it has guarantees, which some people need.
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u/I_Ron_Butterfly 14d ago
Not all investments have the objective of maximizing returns, and especially with regards to heirs. In this case, it’s hedging longevity risk.
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u/jeffreyjames007 14d ago
Thinking HSA as well, I would think not bother with bonds bc of the 5% HSA’s out there right?
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u/Chonan_Akira 14d ago edited 14d ago
Put it in HySA a or CD ladder. They may need that money in the future even if they can get by with $80k right now.
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u/toomuchtodotoday 14d ago edited 14d ago
Hijacking, my apologies. 10 year treasury notes, currently yielding ~4.4%. Locks in the current rate, secondary market if they need to sell, no state income taxes. They are already passed life expectancy and should not outlive a 10 year t-bill, but if they do, you can re-evaluate re-investment at that time based on their financial situation. Should provide ~$9600/year in additional income pre tax.
Ease of purchase is a function of their broker. I recommend and am familiar with Fidelity, but others work just fine.
See below thread.
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u/Orbidorpdorp 14d ago
I mean, the life expectancy for a woman already aged 80 is 9.1 years. I wouldn’t call 10+ “unlikely”.
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14d ago edited 14d ago
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u/toomuchtodotoday 14d ago edited 14d ago
Appreciate the correction, I meant note, not bill. I deleted my reply about USFR being superior, it appeared to be based on https://old.reddit.com/r/Bogleheads/comments/11prp0b/hysa_mmf_cds_tbills_searching_for_the_best_return/, but I believe the duration is too short for OPs needs. The rate is slightly higher, but they need long duration at the best rate possible. Also, you're not locked into t-notes, you can sell into the secondary market if you need liquidity.
USFR is probably fine if your duration for those funds is ~4-5 years; I argue locking in at 4.4% for 10 years is superior to ensure the income stream outlasts OP's parents. Just my two cents, considering less than 100 basis points pretax on ~200k.
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u/clevelandcaucasians 14d ago
Good to know about selling notes early, because I normally get bills and those are locked until maturity. Thanks for that tip.
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u/Marna1234 14d ago
What’s a CD ladder?
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u/borkyborkus 14d ago
Where you put a portion of your balance in different term lengths of CDs so that you get the principal back at predictable points in time plus the interest.
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u/lakeoceanpond 14d ago
Def consider a nice cd ladder & consider dca’ing into the market with rest. Separate of any cash you’ll keep for the short term.
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u/gezafisch 14d ago
Best case scenario, they live another 20 years. Realistically, that number could easily be 1-10 years. You want them to DCA into the market so they can pay for a nice gravestone or something?
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u/helpwithsong2024 14d ago
Does the 80k cover all their expenses for the year? 80 is basically when you gotta think seriously about legacy planning. Maybe think about a wealth preservation portfolio of mostly cash in HYSA and bonds.
Also, if they don't need need the money have they thought about finding say 529s for their grandkids? Or putting it in a living trust in a market portfolio to be passed down when they pass on?
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u/jeffreyjames007 14d ago
The 80k does cover them for now but as he ages he won’t be making that. So it’s really to preserve lifestyle income.
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u/MagicWishMonkey 14d ago
Just so you know, if they ever need to go to a home or whatever it’ll use up that money insanely fast and Medicare won’t cover things until they are broke. Maybe putting the money into a trust of some sort would be better.
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u/crap-with-feet 14d ago
If they put all of that cash in a HYSA, all $270k, that would produce roughly $1k/mo until and unless interest rates drop. Before tax. That won’t come close to replacing an $80k income especially after losing health benefits from the employer (if any).
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u/helpwithsong2024 14d ago
220k won't cover that lifestyle then. You'd need some seriously impressive growth and that's far too risky.
You could do as early of a target dated fund as you can find. Would prob be 60 percent bonds and 40 percent stock.
You might need to cough up any shortfalls.
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u/CashSTAK 14d ago
Impressive growth - zero risk is doable now in asset classes. Have stop thinking traditional banks and Markets.
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u/helpwithsong2024 14d ago
I mean it's not 0 risk, it's just minimal risk since it's 50/50 bonds to stock. But for someone like you, pick the target fund that has the year you're planning to retire in.
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u/jeffreyjames007 14d ago
Happy to do that. TDF is a good idea setting the target date for 10 years perhaps. Damn it’s sad thinking about that but at least they have a cushion now.
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u/Bottle_and_Sell_it 14d ago
It is super sad, you spend your whole life building things up and acquiring things and saving and planning and finally have a nice house and nice things then your spouse dies and you can’t live alone and it’s all gone in months. I’m the grandkid watching my parents go through this rn and it all seems to happen very close in time, like all my grandparents (I had 6) started dying a few years ago. My moms mom is the last one and she has moved in with my mom after grandpa died in January. So they’ve had to deal with lots of financial issues and they said the best thing for end of life planning they’ve had to personally handle is to make a trust.
Also no matter who you think your other family are or what kind of people they are, there’s inevitably going to be some drama over who gets what and they can get very petty and shady, especially if you live in another state and they live in the same town as the decedent. I now understand why people go to court so often for that type of thing. I got the sweetest aunts in the world I thought all my life now I’m like who are these people acting like this about just stuff?
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u/helpwithsong2024 14d ago
Earliest that's open to outside investors I could find is https://investor.vanguard.com/investment-products/mutual-funds/profile/vtwnx
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u/jeffreyjames007 14d ago
Thank you for looking at this. HYSA seems to be a bit more lucrative as past year yield is in the 3% range
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u/kronco 14d ago
VTWNX also holds stocks so it is also designed for some capital gains. Of course, that means risk is higher. So, you should look past the yield unless you are mostly interested in income. (VTWNX was up 12% in 2023 and 10 year average return is around 6%/year).
My 83 year old father uses the following for an income stream in a Schwab account (listed least to most risk):
55% SNVXX Money market currently paying 5.04% https://www.schwabassetmanagement.com/products/snvxx
15% SCHO Schwab Short-Term US Treasury ETF currently paying 4.94% https://www.morningstar.com/etfs/arcx/scho/quote
15% MINT PIMCO Enhanced Short Maturity Active ETF paying 5.34% https://www.morningstar.com/etfs/arcx/mint/quote
15% JEPI JPMorgan Equity Premium Income ETF paying 6.82% https://www.morningstar.com/etfs/arcx/jepi/quote
Some of the funds in SNVXX and SCHO are possibly moving to longer duration bonds (SCHR) in near future.
This article has some good info on withdrawal rates for a poprtfolio in retirement: https://www.morningstar.com/retirement/good-news-safe-withdrawal-rates
See the chart in that article titled: 30-Year Starting Safe Withdrawal Rate %, by Asset Allocation
From that chart, a 0% equities portfolio (all bonds) can safely withdraw 6.7% of the portfolio, per year, for 15 years. So with 220K starting, that is about $14.5K per year. You adjust the 14.5K up by inflation each year. So if inflation is 10% in year two you would be 14.5 + 1.45 = 15.95K (in year two). I use 10% inflation to make the math easy -- hopefully we never see that. But basically it is 14.5K per year keeping the same purchasing power over time. So, that is what they have to work with using 'conventional' strategies as outlined in that article where you want a 90% probability it lasts 15 years. You can also see columns for 10 years and 20 years, etc. if you want to plan for a shorter or longer life spans.
Mix in some equities and you can (historically) take out more. But, bonds are doing pretty well now so equities don't add as much as you might think (at least according to that article). Back to VTWNX as an example: It is 40% stock and 60% bonds. According to the chart, for 15 year life, your starting number is 6.8% of the portfolio. Not a big jump (0.1%) over an all bond portfolio yet with more risk. A 10% equities and 90 bonds actually has a higher withdraw rate at 6.9%. (Bonds returns are pretty nice right now.)
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u/AlanzAlda 14d ago
Just put it in a money market if they don't need it today. On Fidelity fzdxx is paying 5.14%, you can pull it out at any time.
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u/js-seattle 14d ago
I came here to say this. Fidelity cash position pays 5% and you can take the money out at any time. That is what I did for my parents who are also in their mid 80s
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u/nilrebolas 12d ago
Put it in margaritas and let them enjoy