Dad has $200K to deploy in retirement, thoughts?

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So as a preface I work in the investment industry and have a degree in Finance. - Not wagging titles here just a competency heads up. - Having said that, my father just recently retired with a pension, social security, and also has $200K of personal savings to invest. His work sponsor instantly wants to throw him in a tax-advantaged annuity. The attraction there is obviously tax benefit plus a consistent monthly payment as income... but my first thought is... let's not jump into anything here. He's 67 and clearly preservation and conservatism is key here, but does anybody have any opinions here? I know there's so many progressive investment options these days and I feel like he could potentially find a way to make some of this money work for him, but in the end, it's not my money and I do want him to be safe, first and foremost. 

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What's a work sponsor?

How much income with the pension?

What tax advantages are you imagining?

Post the details of the annuity. It's almost certainly a bad idea.

200k isn't much for retirement savings, at least in terms of liquidity.

How recently did he retire? Does SSA plus pension meet his budgeted needs? Does it 'just' meet his needs or is he banking money each month?

Assuming 'just retired' means a couple months, he should do nothing and simply wait 6-12 months to get a feel for his retirement budget (nothing beats experience) before deciding.

wilked said:   How recently did he retire? Does SSA plus pension meet his budgeted needs? Does it 'just' meet his needs or is he banking money each month?

Assuming 'just retired' means a couple months, he should do nothing and simply wait 6-12 months to get a feel for his retirement budget (nothing beats experience) before deciding.

  +1
To add: What do you mean by he as 200k to deploy? Is this a windfall he just received as part of retirement (or inheritance, lottery or something else)?
If this is all his savings over the years, what is it currently doing? How was he investing that 200k till now (unless he acquired it overnight). Leave it as is for now before you/he has a good idea of his retirement income (pension/SS)  and his expenses.
ETA: Is the 200k part of an IRA or other tax-advantaged plan?

I haven't confirmed yet, but assume (will circle back to confirm) it's his investment savings external from his pension. - His financial IQ is fairly low so he's just taken advice for the majority of his career and not really taken an active stake in his outcome. I agree I think budgeted expenses should come first, but I also think, given that he has a fixed income dual scenario going with his SS and Pension, why go for another that provides no growth? Maybe just take the $200K (assuming SS and Pension cover his needs) and throw in the lowest fee total market index fund and call it a day?

Isn't the purpose of an annuity to protect against longevity risk? At the expense of lower returns? I'd suggest the annuity is unnecessary if he already has a pension plus SS for life- assuming his expenses are covered by it. If all that is true, he has no need for an annuity.

He likely can afford some risk with it. The present value of his SS/pension is probably at least a million dollars, essential in fixed income. He could put the entire 200k in stocks and still only have an effective 20% allocation to equities as a fraction of his net worth. The X factor will be his needs for eventual long term care/nursing.

 

Typically I wouldn't recommend a market index fund for people of that age bracket but he got a stable pension so it may favor slightly more risk. Otherwise I would say go with a conservative growth fund from Vanguard.

FWIW, my BS detector goes off when I heard "tax advantaged annuity"

ryanpaulkearns said:   I haven't confirmed yet, but assume (will circle back to confirm) it's his investment savings external from his pension. - His financial IQ is fairly low so he's just taken advice for the majority of his career and not really taken an active stake in his outcome. I agree I think budgeted expenses should come first, but I also think, given that he has a fixed income dual scenario going with his SS and Pension, why go for another that provides no growth? Maybe just take the $200K (assuming SS and Pension cover his needs) and throw in the lowest fee total market index fund and call it a day?
  
putting my CFA hat lol (i did pass through the 3 levels) .... and it had something specifically about people with low financial IQ.    

- You want to pick something that's not too complicated and that he fills comfortable with.  That's what it is being boradcased when you say low financial IQ (meaning not too much appetite for stock or other complex investment)
 - Preservation of capital got to be top of the list -  meaning short to medium term bond got to be in consideration
-  A market index fund (stock fund) can dip say 10% to 20% or even 30% in one year.  Keep that in mind.
-  I would go with at least 50%  in bond funds of various duration/terms - some short term say 20%, 20% mid term, and say 10% long term
-  keep 10% or so in short term, money market like funds - you never know when you need some emergency cash
- The rest, say 30-40% - i would split in few types of stock funds - pick mostly "balanced" funds - and look closely their downside over past 10-15 years.  You want to pick less volatile ones, even if returns are not so high - you want to make sure they are not too volatile, and downside is something you can live with.   At retirement age - you need to consider your time horizon - you may not have enough time to endure a long market downturn (if you are young, you've lot of time for market to turn around and recoup your loss)


 

It's tough to say though however, as a lot of experts feel we'll be in a low return environment in equities moving forward, even though it's still more growth than an annuity. My thought was what about deploying to other less conventional ideas like real estate or rental properties? Assuming I can assist him in the labor and upkeep? Seems maybe it might be a headache but just a thought...

ryanpaulkearns said:   It's tough to say though however, as a lot of experts feel we'll be in a low return environment in equities moving forward, even though it's still more growth than an annuity. My thought was what about deploying to other less conventional ideas like real estate or rental properties? Assuming I can assist him in the labor and upkeep? Seems maybe it might be a headache but just a thought...
You are all over the place. Get more info to the questions we asked, then come back. Otherwise we're just spinning wheels.

ryanpaulkearns said:   It's tough to say though however, as a lot of experts feel we'll be in a low return environment in equities moving forward, even though it's still more growth than an annuity. My thought was what about deploying to other less conventional ideas like real estate or rental properties? Assuming I can assist him in the labor and upkeep? Seems maybe it might be a headache but just a thought...

IMO, that's a terrible idea for someone that old. If you want exposure to real estate, just buy a REIT. Again, assuming his pensions/SS cover his expenses, he's already won the game. Why get into something that requires *any* amount of active management at his age?

You have a degree in Finance?  

This is one of those FWF threads that makes me feel uneasy -- "that old" "that age bracket" etc -- since I am 67. Happily retired for 10 years and well over 70+% of my portfolio in very low cost index funds at Fidelity. Please, 67 is not that old! Really!

Two other questions to be answered -- what is the OP's father's health, and what is his risk tolerance? Assuming good and average (i.e., willing to lose some principal in market downturns) and also assuming his pension and SS are enough to cover current expenses, I'd say put 75% in a cheap total market index fund and the put the rest in emergency cash reserve, an easily breakable CD or savings acct.

I just turned 50 so 67 seems kind of reasonable

I'm just thinking that if the OP's dad was the kind of guy to invest in hands-on real estate, he likely would have already been doing it.

I must be getting old if "having a Degree in finance" gives you a title to wag!

I have a Masters in making those pretty flower patterns in my customer's coffee foam

TravelerMSY said:   
ryanpaulkearns said:   It's tough to say though however, as a lot of experts feel we'll be in a low return environment in equities moving forward, even though it's still more growth than an annuity. My thought was what about deploying to other less conventional ideas like real estate or rental properties? Assuming I can assist him in the labor and upkeep? Seems maybe it might be a headache but just a thought...

IMO, that's a terrible idea for someone that old. If you want exposure to real estate, just buy a REIT. Again, assuming his pensions/SS cover his expenses, he's already won the game. Why get into something that requires *any* amount of active management at his age?

Besides buying a REIT - more innovative strategy is rapidly raising, it's RE crowdfunding

It's is more laborious than REIT, but you control your outcome to much larger degree in exchange; must be a qualified investor (but his total retirement package should qualify him)



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