[Andrew]

So my parents (age 70) have asked if I would manage their retirement money and I’d like to bounce some allocation percentages off people. They only have about 200,000 in 401k assets. They take in about 3,000 combined in social security and both work a part time job that is currently paying them around 1,000 a month. Their living expenses are around 5,000 a month.

My thoughts are 20,000 in cash and the rest of their 401 into investments. 60% S&P 500 and 40% in a bond. Withdraw 5% annually.

[Frank]

They would be better off using the Vanguard Wellington Fund and only having a year’s worth in cash that gets re-filled every year.

Realistically, they are going to run out of money because they cannot work forever. This problem cannot be fixed with asset allocations. If they have a house than can be downsized, now would be the time to do that.

I would also consider a joint life immediate annuity for half of that, as it would have a payout of over 7% at their age and provide extra monthly income.

[Joan]

They’re both working part-time and together only bring in 1000 a month? (500 each??).

What sort of work do they do?

They need to work more. They need to work enough for awhile so that they’re not spending any of their investments…to allow those to fully grow.

Why are their living expenses so high? Rent? Paying a mortgage?

If they can’t increase income, then they need to cut back on living expenses.

Where can they reduce?

[Michael]

Just washing those numbers through FI Calc shows 75% historical success of lasting 20 years withdrawing $12k per year- their current delta.

If they can trim that down to $10k per year…the success rate goes up to 94%. If they can make slightly more at the PT job or manage to spend slightly less, it gets better.

Your proposed 5% withdrawal rate is $10k per year, so that works…at least in history and assuming they don’t live past 90.

There are probably some good strategies to de-risk some of this that would require more information- Do they own other assets like a house? How long are they going to work part time?

Have you seen: Does 401k rollover count towards Roth IRA contribution limit?

[Tonya]

When one of them passes, the other will have a permanent reduction in SS income. This plan is not sustainable and should be re-thought.

[Angelo]

Perhaps they need to lower their expenses? In terms of the portfolio, I think that’s too much in cash. I’d shoot for a portfolio that has the highest safe withdrawal rates like the Golden Butterfly.

Personally, I’d do something like 30% total us stock market, 30% us small cap value, 20% us long term treasury 10% gold ETF, 7% reits 3% cash.

[Candice]

They need to reduce their expenses, because at 70 they likely can’t work more or the chances are high that they may suddenly not be able to work due to health etc.

Can one of the kids take them in for example? Somehow find cheaper rent or sell their home if they have one?

They will need to get creative.

[Rick]

Another vote to consider immediate annuities. Hope to win the mortality credit lottery and out live the expected age of passing.

I don’t normally suggest these but when there is a strong need for income over all else to cover a problem, in this case a spending problem now but soon enough an income or income from assets problem, that mortality credit is a solid way to address it.

Bye bye inheritance though but I imagine this is far less a deal then their immediate need for solid income. Good luck making a plan they enjoy now and for a good while.

I hope you settle on something that works well for all.

Worth a look: Maxed 401k, start index funds: 1 per pay period, Fidelity, DIY or advisor? Good strategy? Recommended funds?

[Craig]

The numbers are not the whole picture. They have less time to recover any loss. Conservative investments may be a better idea. You may want to look at tax exempt bonds.

Vanguard offers many with 5 percent plus returns.

[Matthew]

Do the monthly living expenses include health care, housing? What exactly are they buying? 5k for 70 year olds seems like a lot. We’re 40 and our total monthly expenses are around 5k.

[Matthew]

They’ll need 6% withdrawal rate based on their income and expense numbers.

[Patrick]

60% stocks at 70 is… very abnormally aggressive. Can you imagine what a downturn would do to their life savings?! Decimated. It’s too late to be aggressive.

Their portfolio needs to be treated as that of an ordinary 70 yo couple.

[Bill]

In reality their safety net is you. Lowering cost of living is critical. Both the loss of health (jobs) and loss of spouse (social security) are very present challenges on the horizon.

Thinking outside the box, they either have to increase their margin, find ways to lower costs, or rely on others to make up the difference.

Consider browsing: Rollover 401k to Roth IRA or Traditional?

[Nicholas]

Like others have said, they have to find a way to reduce expenses now. If something happens to one of them, they are out $1500/ month in SS benefits assuming it’s equal…

Would be aiming to reduce expenses to $3500-$4000/ month.

$60k in high yield savings/ money market. (1 year)

Would suggest a high income fund like JEPi for $40k, remaining $100k, split between sp500 (VOO/ IVV etc,) and dividend growth like SCHD… this mix will throw off $7k-$7500 in income a year.

Tough situation but you guys got this.

[Author]

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