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Started By
Message
Need advice for parents (Long OP, Beware)
Posted on 4/26/13 at 11:02 am
Posted on 4/26/13 at 11:02 am
I'd like to get some feedback regarding my parents financial strategy. Basically they both came up from nothing and they appreciate the value of a dollar more than anyone I know. When I was a child they were as broke as you can get.
My dad has 35+ years through his local union and apparently will get a decent pension from it one day. He is 55. He basically works enough these days to keep his insurance up and is semi retired. Everything is paid off so he is able to pick and choose his jobs and doesn't chase overtime like in years past.
My mom has nearly always been a stay and home with the exception of a couple of part time jobs when I was older. However she has inherited several hundred acres (her portion is several hundred acres, it is alltogether ~2000 acres split 5 ways) of farmland that is undivided property that they will never sell (which is great). It altogether draws ~$15k-$30k a year from crop leases and oil/gas leases/wells. Depending on many variables it varies significantly.
Now, I'm not very concerned about their future. They have everything they own paid off. They have a nice brick home they built less then 15 years ago. They did most of the work them selves and put less than $120,000 in it. It's appraised for nearly $400k now and steady going up. They are getting ready to sink about $35k-40k in it to upgrade as they were on a budget when they built it.
Now since money was so tight when they were younger, they don't want to risk any of it. They have no retirement accounts other than my dads pension and my moms income from the land. They just hoard money in a savings account "in case they ever need it." We'll they don't realize that they won't ever "just need" several hundred thousand dollars. They are not a good fit for stocks and mutual funds as the first time it takes a dip they'll freak and sell out. But I would like to be able to find a way for them to make a little money over the next 15 years or so from this stash. I've tried convincing them into acquiring some rentals, but so far all I've been able to do was convince them to put 10k in a CD that paid out a couple percent over 3 years. After it matured they didn't want to renew it because it scared them to not be able to access the 10k if they needed it. Should I just leave it alone since they do have everything paid off and are in good financial health or is there anything with zero risk that they could try? I know I should be grateful for having parents that appreciate the value of money, but at the same time I'd love for them to be able to use their money to boost their income one day down the road. I'm not really sure as to what I'm asking as I'm not a retirement guru, I guess I'm just trying to judge how solid they are for the future. The crops leases and oil/gas revenue are not guaranteed but are very stable for the future.
My dad has 35+ years through his local union and apparently will get a decent pension from it one day. He is 55. He basically works enough these days to keep his insurance up and is semi retired. Everything is paid off so he is able to pick and choose his jobs and doesn't chase overtime like in years past.
My mom has nearly always been a stay and home with the exception of a couple of part time jobs when I was older. However she has inherited several hundred acres (her portion is several hundred acres, it is alltogether ~2000 acres split 5 ways) of farmland that is undivided property that they will never sell (which is great). It altogether draws ~$15k-$30k a year from crop leases and oil/gas leases/wells. Depending on many variables it varies significantly.
Now, I'm not very concerned about their future. They have everything they own paid off. They have a nice brick home they built less then 15 years ago. They did most of the work them selves and put less than $120,000 in it. It's appraised for nearly $400k now and steady going up. They are getting ready to sink about $35k-40k in it to upgrade as they were on a budget when they built it.
Now since money was so tight when they were younger, they don't want to risk any of it. They have no retirement accounts other than my dads pension and my moms income from the land. They just hoard money in a savings account "in case they ever need it." We'll they don't realize that they won't ever "just need" several hundred thousand dollars. They are not a good fit for stocks and mutual funds as the first time it takes a dip they'll freak and sell out. But I would like to be able to find a way for them to make a little money over the next 15 years or so from this stash. I've tried convincing them into acquiring some rentals, but so far all I've been able to do was convince them to put 10k in a CD that paid out a couple percent over 3 years. After it matured they didn't want to renew it because it scared them to not be able to access the 10k if they needed it. Should I just leave it alone since they do have everything paid off and are in good financial health or is there anything with zero risk that they could try? I know I should be grateful for having parents that appreciate the value of money, but at the same time I'd love for them to be able to use their money to boost their income one day down the road. I'm not really sure as to what I'm asking as I'm not a retirement guru, I guess I'm just trying to judge how solid they are for the future. The crops leases and oil/gas revenue are not guaranteed but are very stable for the future.
8
Posted on 4/26/13 at 11:26 am to braindeadboxer
I don't know but my parents loved their tomatoes.
Posted on 4/26/13 at 11:30 am to braindeadboxer
I cant think of any options to suggest based on what you posted.
You are going to be fighting their lifelong fears / beliefs and especially coming from their child its going to be hard to sway their opinions and open them up to new ways of thinking.
Is their someone you can enlist to help show them the advantages? Someone older who's opinion carries weight with them?
I mean, if they cant stomach any market swing at all from a low risk mutual fund and a CD is too restrictive, I dont know where you go from there.
You are going to be fighting their lifelong fears / beliefs and especially coming from their child its going to be hard to sway their opinions and open them up to new ways of thinking.
Is their someone you can enlist to help show them the advantages? Someone older who's opinion carries weight with them?
I mean, if they cant stomach any market swing at all from a low risk mutual fund and a CD is too restrictive, I dont know where you go from there.
This post was edited on 4/26/13 at 11:31 am
Posted on 4/26/13 at 11:38 am to braindeadboxer
Obviously there are several completely safe and conservative options out there. Unfortunately they are currently not paying well, and it sounds as if even these options are outside of their risk tolerance level. Assuming that the pension, and oil rights can sustain their lifestyle, I would recommend that they delay taking ss. This will decrease longevity risk, by having a higher monthly income from SS for their lifetime. Also, with the equity in the house; they should set up a home equity line of credit. This will allow them to have access to funds they will hopefully not have to touch.
Posted on 4/26/13 at 11:41 am to Chris4x4gill2
I would just leave it alone. They have no debt and will be getting a pension and social security. That should easily cover their needs the way they spend money.
If they get in a bind, they have a few hundred thousand dollars set aside or could possibly sell some of the 2000 acres.
Their strategy is far from optimal but should suffice given their views towards spending and saving. If they choose peace of mind in their way of doing things versus the chance to earn more money that they won't use anyway, then I wouldn't lose any sleep over it.
It should be a great feeling to have them in such a good position approaching retirement. You should congratulate them on their hard work and discipline over the years and that they will not need to stress about money during retirement.
If they get in a bind, they have a few hundred thousand dollars set aside or could possibly sell some of the 2000 acres.
Their strategy is far from optimal but should suffice given their views towards spending and saving. If they choose peace of mind in their way of doing things versus the chance to earn more money that they won't use anyway, then I wouldn't lose any sleep over it.
It should be a great feeling to have them in such a good position approaching retirement. You should congratulate them on their hard work and discipline over the years and that they will not need to stress about money during retirement.
Posted on 4/26/13 at 11:46 am to braindeadboxer
sounds like someone is trying to increase his inheritance. good move and good luck.
Posted on 4/26/13 at 11:52 am to braindeadboxer
Consider a TIPS mutual fund like VIPSX as an inflation hedge. It still offers modest appreciation in a bull market, certainly better than a savings account, and it's about as safe as you can find with 100% of its assets in treasury bonds.
Posted on 4/26/13 at 11:56 am to braindeadboxer
I'd just leave it alone. Your parents are happy and secure.
Posted on 4/26/13 at 11:57 am to braindeadboxer
quote:
Should I just leave it alone since they do have everything paid off and are in good financial health or is there anything with zero risk that they could try?
A fixed annuity from a AAA rated insurer would be a start in the right direction...currently low interest but no investment risk...
Posted on 4/26/13 at 11:58 am to amsterdam
quote:
A fixed annuity from a AAA rated insurer would be a start in the right direction...currently low interest but no investment risk...
Pretty good idea. Make a very short term.
Posted on 4/26/13 at 12:04 pm to braindeadboxer
If this were the 80's, 90's, or 00's, I would say just have them invest in a Treasury mutual fund and go home happy. However, due to coupons and yields being around all time lows and duration (interest rate risk) being around all time highs I would not recommend that has a "safe" investment. Also, money market mutual funds are yielding 0%, basically across the board.
If it were up to me considering their risk profiles, I would have them invest in a high quality investment grade corporate bond fund. You will pick up income while, in a way, actually taking less risk compared to a Treasury fund for several reasons. Interestingly enough, there are 35 companies whose CDS trade lower than the United States, and by that I mean the market views these companies as less risky than the United States if that makes sense. However, considering how tough of a sell that would be from what you've said, I doubt you'll have any luck with that.
My other thought was some sort of annuity, but if they are uncomfortable with the lock up of a CD then I doubt they would be comfortable with any sort of annuity.
This all was basically a long winded explanation to just say let it be. They are too risk averse and liquidity focused while the conventional options they would be comfortable with, I would not be comfortable recommending to them.
If it were up to me considering their risk profiles, I would have them invest in a high quality investment grade corporate bond fund. You will pick up income while, in a way, actually taking less risk compared to a Treasury fund for several reasons. Interestingly enough, there are 35 companies whose CDS trade lower than the United States, and by that I mean the market views these companies as less risky than the United States if that makes sense. However, considering how tough of a sell that would be from what you've said, I doubt you'll have any luck with that.
My other thought was some sort of annuity, but if they are uncomfortable with the lock up of a CD then I doubt they would be comfortable with any sort of annuity.
This all was basically a long winded explanation to just say let it be. They are too risk averse and liquidity focused while the conventional options they would be comfortable with, I would not be comfortable recommending to them.
Posted on 4/26/13 at 12:20 pm to BennyAndTheInkJets
Thanks for the input guys. I think I'm just going to let them be. They've saved well and have little to worry about financially. There isn't a thing in the world they need. I just hate that they have that much money sitting there that could be working for them. But it is there money, so I'll let it be.
Posted on 4/26/13 at 12:37 pm to braindeadboxer
Yeah, agreed with the poster above about short-term fixed income securities. The market for low-risk securities shouldn't scare off your parents. I'm not in the business so I can't point you to any specific securities, but I'm sure some people can.
Posted on 4/26/13 at 2:09 pm to braindeadboxer
Sounds like your parents are in good financial shape. I would recommend looking into
long-term care insurance because extended care
in a nursing home, if it is needed for one
or both of them, could drain their assets
alarmingly fast. I'm talking like $50,000+
per year per person.
If they are both around 55 years of age LTC
is not prohibitively expensive if they are in
good health, so now is the time to buy.
Do your research. The internet is your friend
for this. I HIGHLY recommend that you look
into LTC for your parents for asset protection.
There are other ways to approach this, such
as a irrevocable trust and hopefully qualifying
for Medicaid if income limits can be met, but
LTC is your best bet.
long-term care insurance because extended care
in a nursing home, if it is needed for one
or both of them, could drain their assets
alarmingly fast. I'm talking like $50,000+
per year per person.
If they are both around 55 years of age LTC
is not prohibitively expensive if they are in
good health, so now is the time to buy.
Do your research. The internet is your friend
for this. I HIGHLY recommend that you look
into LTC for your parents for asset protection.
There are other ways to approach this, such
as a irrevocable trust and hopefully qualifying
for Medicaid if income limits can be met, but
LTC is your best bet.
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