Mom's retirement/housing situation; suggestions?
 

My mother is in her early/mid 50's. She will get a small pension from an oil company she worked for 20 years ago. She also has around 200k she more or less recently aquired in peices as inheritance. Yes, her retirement is grim but I'll be able to help her [God willing] and life is unpredictable.

She works and always has worked as a secretary, her income will stay around 36-40k a year. My parents are recently divorced and she's staying with a friend, looking to purchase a small house around 110-130k$ [this is TX remember, not Socal].

First, the 200k is just being moved around in CDs. That's all she knows how to do. I am not overly confident in my knowledge in maximizing returns this late in life without getting too much risk. I'm thinking miminum 66/33 split in something like Vangaurd and CDs. I will probably not have time to manage this for her and want to keep it simple. Maybe at retirement age bring it back down to 50/50. Any tips? I'm just using common sense here, this is unfamiliar ground.

Second, the housing situation. With no state income tax, property taxes will probably be about a grand a year even on a small home. The housing market is good in TX and in Houston for the most part. A) Should she partially finance it or buy it outright? Remember, she is not going to be participating in high interest rate activities to offset any financing charges like many of us. B) Is there some other strategy besides buying a small home that may work for the best?

Thanks sincerely guys

Investigate bond funds if you are looking for a lot of stability. Even a conservative one (investing in AAA and AA rated debt) should easily beat the 4.x - 5.x% you could earn on CDs right now. A mortgage is almost always preferrable to buying outright, and in a flat housing market she would be better off investing some of the money she would have put into the house into a fund.

Also several companies now offer a product that automatically gets more conservative based on a planned retirement date. These are built for hands off investors. You mentioned Vanguard, here is their product: https://flagship.vanguard.com/VGApp/hnw/con...OverviewJSP.jsp

Also is the money already being held in a retirement account?

Given the money in the bank to back it, her mortage will probably be managable as well if she chose to finance it or the majority of the house. She probably wants to put some kind of $$ down and owning her own home out right is a big deal to her mentally as she ages.

I checked out the vangaurd product. I'm going to look at it more carefully, so far it sounds exactly like what I'm looking for.

Given this, what %'s should she be dealing with if she[I] chose this fund refering to mutual funds/CDs? Is it worthwhile to keep any funds in CDs at this point? Go mutual funds all the way?

Due to the recent divorce and recent inheritance, the money is just going from a savings account to CDs and so forth. She has just realized she'll be more or less on her own retirement wise which was not the case not too long ago.

If it's important mentally consider putting a larger downpayment and she should be able to afford a 15 year mortgage on her expected income. This should put her into a position to own her home by retirement.

I don't see any reason to keep the money in CDs. They aren't very liquid and a high yield savings account can give you the same return with access to your money. I would put anything she doesn't need for the house into something similar to those Vanguard funds and keep something like 5% of the money left over after the house purchase in a high yield saving account for emergency cash.

I second the 15-year mortgage, with enough down payment to avoid PMI. That will give her the peace of mind that comes from an almost-paid-for roof over her head at retirement age. If she can afford it on her income, she can pay a small amount of additional principal every month to cut a couple of years off of the payoff date.

I'd also recommend some "cash-equivalent" for emergencies. You should be able to find an FDIC institution (HSBC, ING Direct come to mind) that that will give CD rates on what is essentially a passbook savings account. That way, if an emergency does arise, there's no "early withdrawal penalty." 6-months take-home pay in an account completely separate from her day-to-day money should be enough to give her some peace of mind.

And for those of us who don't want to work hard at managing our money, I like the "target retirement date" funds. Find a good one, put the bulk of the money there, and forget about it. That frees you up from having to adjust risk level downward over time.


I hope that she isn't facing a big reduction in life style; if her ex-husband provide the bulk of the household income, she may have some trouble adjusting. If his income was comparable to hers, she's probably already used to living within her means.

Hate to go against the Grain however this is what I would suggest

First assuming her health is good have Her Get a 300,000 permanent life insurance policy.

Then have her buy the house with a 30 year loan.

Invest 150,000 in a institutional money Management with a protection strategy, this type of account the last ten years had averaged a annual return of 9.96% with less risk than the a 60/40 S&P 500/bond mix.

Invest reaming money in a good Bonus Indexed Annuity. Average return historically has been between 6 and 7% no risk.

When you Mom is age 65 see can pay of her mortgage with a reverse mortgage, plus the bank will give her extra money each month tax free. The loan balance will be due if she should pass, but the life insurance will pay it off for pennies on the dollar. This combo money management/annuity will offer High returns with less risk than a 60/40 stock bond mix, plus protect the house from the nursing home.

I couldn't diagree anymore.

What does she need life insurance for? She's a widow with no dependents. Net of fees, a life insurance contract cannot compete with a good balanced MF strategy.

I don't necessarily disagree with a 30 year loan, but put a big down payment down. I would probably take the money from the inheritence and just buy the house outright. She has 15 years to retirement. That money has already been taxed. Without a mortgage payment she'd be able to maximize her qualified plan contributions.

$150,000 is not enough money to invest with an institutional money manager. Not to mention the handcuffs an institutional money manager would have through any sort of wire house account. Plus add a 2 or 3% fee for the money management.

Bonus Indexed Annuity??? Are you on glue? Worst invest in the history of investments. The only bonus is for the rep that sells it. Why would you want to cap performance when market bias has been upward for the past, um.... 100 years or so?

A reverse mortgage is a last resort, screw you heirs strategy for the ultra poor.

Remember than Vanguard is no different that E-Trade. You are dealing with a 1-800 number, and you are pretty much on your own when it comes to managing your fund selections. I'd be willing to bet that the average person has a better chance changing the clutch in their car with a screw driver and hammer than they have investing their money properly without some serious time invested in learning how to do it. Have her sit down with a financial advisor.

I believe the given product is different. Check it out and report back if you disagree. I still need to assess all the fees, that's all that's remaining in the process [besides maybe a good correction].

I agree partially with xfiremd. What you guys have to understand, is your dealing with a widowed women that knows nothing close to what we all know about the market. On top of that, she is interested in perservation rather than rapid growth. Index annuites, (the good ones) have NO FEES, NO CHANCE OF LOSS, and max cap returns of up to 26% a year. My folks both have them, my dad did 12% last year in his, and he's tickled pink about that.

And who made the comment the agent is the only one happy....do you realize that a index annuity pays a commission ONCE. And thats it. And if comes from the companys pocket and NOT the clients money. Or pay your money manager 1.5% a year...hah...even when he loses money...."but your upside is UNLIMITED..haha but so is your DOWNSIDE"

I understand everyone has their opipions about the market and investing, but when your giving someone a recommendation for his widowed RETIRED mother, try and stand her shoes and not yours. Personally, I do NOT have a index annuity, but for some people they are great products.

Aaron Sweigart, CSA