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Started By
Message
Large Inheritance at the age of 62, WWYD??
Posted on 4/1/15 at 6:59 am
Posted on 4/1/15 at 6:59 am
I have a family member who is a single mother at this point in her life and has been for the past nearly 20 years raising three kids. She has worked since eighteen years of age and will be retiring in 4 years. She is not a wealthy individual by any means and the 400K can go a long way for her retirement.
My question to the MT board is how should she invest this money?? Bond and CD rates are complete shite right now. Should she focus on dividends??
My question to the MT board is how should she invest this money?? Bond and CD rates are complete shite right now. Should she focus on dividends??
9
Posted on 4/1/15 at 8:40 am to jlu03
What debt does she have mortgage, car, credit cards?
I would put it in 3 separate buckets but can't answer how much in each without more info.
I would put it in 3 separate buckets but can't answer how much in each without more info.
Posted on 4/1/15 at 8:42 am to LSU9102
Thank God the first reply didn't blindly tout Vanguard Index Funds. Have her work out a budget. Cease and desist all investment ideas until then.
Posted on 4/1/15 at 9:05 am to LSU9102
Zero debt. House has has been paid off for quite a while but she is thinking about buying a new car.
Basically looking for low risk but wanting more than a miniscule 2% return.
Basically looking for low risk but wanting more than a miniscule 2% return.
Posted on 4/1/15 at 9:14 am to jlu03
Not giving advice, but to answer what would I do in general in the circumstances provided:
250k in Vanguard Equity Income.
150k in Vanguard REIT
Let it grow for now.
When you want to tap it, take out the dividends.....reinvest the capital returns.
Sit back and enjoy.
You'll have ~10,000 a year that will increase at a faster rate than inflation over time, as well as a egg to pass on/ tap into in a long retirement after other assets are exhausted.
250k in Vanguard Equity Income.
150k in Vanguard REIT
Let it grow for now.
When you want to tap it, take out the dividends.....reinvest the capital returns.
Sit back and enjoy.
You'll have ~10,000 a year that will increase at a faster rate than inflation over time, as well as a egg to pass on/ tap into in a long retirement after other assets are exhausted.
This post was edited on 4/1/15 at 9:18 am
Posted on 4/1/15 at 9:16 am to jlu03
Down payment on a car, keep working to get car paid off with day job and she can get max SS
Posted on 4/1/15 at 9:16 am to jlu03
quote:
she is thinking about buying a new car.
Duck!
It's certainly worth having a reliable car, but "new/fancy" car should be a low priority.
With no debt, she is well positioned to put the 400k to work as retirement income. If she has 3 kids, that's a major consideration (college, health, etc) as well as retirement.
It's probably wise to speak to a professional in this case. Too many moving parts in this scenario to offer specific advice.
ETA:
quote:
she can get max SS
This is another good point. Holding out to max SS is usually a good idea, and this windfall shouldn't be used as an excuse to retire early.
This post was edited on 4/1/15 at 9:20 am
Posted on 4/1/15 at 9:18 am to jlu03
quote:
Should she focus on dividends??
That's what I would do - pick 10 to 12 of the top dividend stocks, set them to reinvest dividends until she retires in 4 years.
Then turn off the reinvestment and take that as dividend income - easily double her social security - and put her in the mid-40s - $400k at this point is about as good as a pension she would have received from some places.
As long as she doesn't blow it on Chippendales and cocaine...
Posted on 4/1/15 at 9:24 am to jlu03
Strippers and cocaine..duh
Posted on 4/1/15 at 9:33 am to jlu03
she is 62 and is still raising 3 kids? like all are still under 18?
Posted on 4/1/15 at 9:33 am to Ace Midnight
How much dividends would $400,000 get you?
I would put it in very low risk stuff like CDs and/or Bonds. She is 62 and it sounds like she needs this money risk free. I would also stay with some liquidity for emergencies.
I would put it in very low risk stuff like CDs and/or Bonds. She is 62 and it sounds like she needs this money risk free. I would also stay with some liquidity for emergencies.
Posted on 4/1/15 at 9:35 am to Stingray
Oh and do not pay for the kids college.
Posted on 4/1/15 at 9:51 am to Stingray
quote:
How much dividends would $400,000 get you?
You can put together a package yielding about 5 to 6 percent, with a low risk profile. And I'm thinking in her case, she's not going to have much other income, so keeping the taxes low is the same as growing the money at this point.
quote:
I would put it in very low risk stuff like CDs and/or Bonds.
Any inflation at all is going to eat these gains. Tax free munis would have a nice tax profile, but are any of them paying more than Squat/2?
quote:
I would also stay with some liquidity for emergencies.
If she buys mid-cap and blue chip dividend stocks with a reputable brokerage (or her bank) - that's as liquid an investment can be - my only caution is that we're at market highs and she might have to ride out a 20% downturn (which is why I would stay away from big board indices with her time window to retirement) - but there is risk in everything. There is risk in doing nothing with the money or at least opportunity costs.
$400k - buying $20 stocks with $1 dividends, even completely flat for the 4 years puts about $80k more with that and ends up generating a permanent income of about $2k a month (give or take) - closer to $3k if she draws it down to age 80 or so.
Not bad for money that just fell out of the sky.
I mean, she can spend it on shite with the quickness, but if she wants it to make a permanent difference in her life, I would invest in some sort of equity - and keeping the risk profile low, bigger companies that reliably pay a dividend in the 4 to 6 percent range is a smart way to go.
Posted on 4/1/15 at 9:54 am to Ace Midnight
Add to that scale buy over a longer period of time to try and hedge against dips.
Posted on 4/1/15 at 9:59 am to eng08
That's my bad.... she "raised" three kids who are all out of college and do not need to be supported.
The car will not be a fancy car but it will be new so that shouldn't be too much to worry about.
I spoke with her regarding the dividend paying stocks but a downturn in the market would kill her equity. I also looked into CD's but those rates are laughable. I had also mentioned to her about buying a small duplex which would be another cource of income and the equity "shouldn't" depriciate especially in the right area.
The car will not be a fancy car but it will be new so that shouldn't be too much to worry about.
I spoke with her regarding the dividend paying stocks but a downturn in the market would kill her equity. I also looked into CD's but those rates are laughable. I had also mentioned to her about buying a small duplex which would be another cource of income and the equity "shouldn't" depriciate especially in the right area.
Posted on 4/1/15 at 10:03 am to jlu03
quote:
I spoke with her regarding the dividend paying stocks but a downturn in the market would kill her equity. I
Not within her retirement window.
quote:
I had also mentioned to her about buying a small duplex which would be another cource of income and the equity "shouldn't" depriciate especially in the right area.
It wouldn't be bad on paper - and something I might consider, but owning property is like having a part time job on top of the money invested.
quote:
The car will not be a fancy car but it will be new so that shouldn't be too much to worry about.
Which, of course, is absolutely guaranteed to kill the equity spent on it within her retirement window.
People have to spend money - I certainly do, but rushing out to do so, as soon as it hits the bank account, is a practice contrary to obtaining/maintaining wealth.
quote:
I also looked into CD's but those rates are laughable.
I agree with this as well, but doing nothing (or spending the money on depreciating assets) is even more laughable.
ETA: In fact, if she has had to struggle and sacrifice all her life, it would be better to set the money aside for annual vacations or such, once she retires - a trip to London, Paris, Rome, Japan, Brazil, etc., is going to be more rewarding and fulfilling than to blow it on cars, clothes and crap at Wal-Mart.
Just my $0.02.
This post was edited on 4/1/15 at 10:06 am
Posted on 4/1/15 at 11:02 am to Ace Midnight
TIPS should be something you should look into. Great for those nearing retirement.
Posted on 4/1/15 at 11:14 am to Ace Midnight
quote:
You can put together a package yielding about 5 to 6 percent,
How do you pick these? Do you have a screen? I've always been of the view that if a stock is yielding that much above 'market', there must be increased risk.
Posted on 4/1/15 at 11:47 am to Ole War Skule
I don't think 5-6% is reasonable at current valuations. Too much risk in those high yielding positions.
She can get 3.5%-4% and be invested in large companies with a very long track record of paying and raising dividends so the income will go up over time (you can average around 4-6% in dividend increases per year).
If she is going to use the money for income and not touch the principle this is the way I would go. She should not worry about the account balance going down or up in the short time frames as over longer periods it should go up with the market.
She should look at it as buying an annuity where she actually gets to keep the principle and it should go up in value over long periods of time.
She can get 3.5%-4% and be invested in large companies with a very long track record of paying and raising dividends so the income will go up over time (you can average around 4-6% in dividend increases per year).
If she is going to use the money for income and not touch the principle this is the way I would go. She should not worry about the account balance going down or up in the short time frames as over longer periods it should go up with the market.
She should look at it as buying an annuity where she actually gets to keep the principle and it should go up in value over long periods of time.
Posted on 4/1/15 at 12:32 pm to jlu03
Does she have a 401k also? Any other income streams?
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