It sounds reasonable, but as a first step I'd probably loop your mother into the decision making process. Even if she's not financially literate, she may want to participate in the decision-making and have a chance to understand what options were available and why you're choosing a particular option over others. If she has fully given over to your discretion on all decisions and wants nothing to do with this as long as she doesn't "run out early," then that's a different situation than I typically think about.1. Is my approach above sound? What else should I be considering?
As you said, you need to determine an AA appropriate for her (whether that's 50/50, 40/60, 30/70, or something else). All of those example AAs have remarkably similar survival rates so that may not be the biggest decision to make. You say that her assets are sufficient to support her lifestyle... does that mean if it was all in cash she'd never run out to age 100? if not, how did you assess that? Did you consider memory care/long-term care in that if she has declining health later (and soaring medical costs)? Does she have LTC insurance? Is she already in a a community where she could transition to assisted living? If not what will that cost? I'd probably be trying to look at the increased expenses over time and see how well any of those portfolio AAs hold up against an spending profile that exceeds inflation at some starting age until a life-expectancy age.
I think the biggest analysis you have pending is a more accurate assessment of spending vs portfolio + other income over time. This might require 30-50 line items in a spreadsheet rather than a single-number calculator offered on a lot of sites. A Monte Carlo simulation over multiple phases is appropriate, so one of these might help:
Portfolio Visualizer's Financial Goals
FiCalc
TPAW
FireCalc
6-18 months of expenses is often quoted, but that's based on how long it takes to find a job to replace lost income due to a layoff. When you're retired, it's not the same "rule of thumb." A 6-month cushion might be suitable (the VPW buffer goblue100 suggested) or perhaps even less ($3K in a checking account to cover 3 months worth of bills in case of a hiccup in automated transfers from portfolio to checking).2. What is the proper emergency fund size for a retired individual (I assume there is a rule of thumb in terms of year(s) of living expenses)?
Up to the top of the current tax bracket, when the bracket is lower than it will be in the future (e.g., when after SS kicks in or after 2025 when tax rates all jump up by at least 2-3% per bracket). I'd probably convert as much as is acceptable from a 2024 tax-liability perspective.3. Advice on when it makes sense to do TIRA to Roth conversions (note: she has not started pulling SS yet).
As you noted, most tax-deferrals require earned income to gain access to. She can purchase I-Bonds and elect for the taxes to be deferred until redeemed, but aside from that, I'm only aware of Trad and Roth 401k/IRAs, which as noted don't fit if she's not working. Also, I-Bonds would require purchase through a TreasuryDirect account, which shouldn't be too much hassle for you, but your mom might not want to deal with "yet another account." Also, also, I-Bonds are limited to $10K/yr in purchases.4. Any other pathways to better tax protect some of these funds?
Given her situation, you might also choose not convert any of the TIRA to Roth and instead fill that 100% with bonds, and then in taxable hold tax-efficient stocks (like Total US Stock Index). If there's room in the TIRA, you could hold stocks there as well and that portion that will hold stocks is still a candidate to convert to a Roth IRA. Hard to be specific without portfolio dollar amounts and an estimate of expenses + SocSec income.
Lump-Sum beats DCA 2/3 of the time. If you still have concerns about that 33% "failure rate," then lump-sum half of the cash into the target AA among stocks/bonds, then DCA the remaining half over 6-12 months.5. Finally, I am leery of simply throwing a large portion of this portfolio into the market all at once at this late stage. I am used to investing while benefitting from DCA and my longer time-horizon, so this is probably where I am most uncertain: how would you go about getting the portfolio to the proper allocation (i.e DCA in over some time-duration versus buy all at once).
Statistics: Posted by bonesly — Sat Apr 20, 2024 4:48 pm — Replies 2 — Views 195