This will fund their final years in assisted living, let’s say it’s 250k they need to park somewhere safe. They do have pension income and ss that meets about half their monthly expenses.
We want to preserve principal, allow for liquidity and leave something for the heirs if they die before it’s used up.
I’m pretty sure they’re exempt from capital gains tax on the sale of the house- I am not sure about other tax implications or how to preserve medicaid eligibility (if they need to go to a nursing home) without spending it all down.
THey seem a little too old for a Lifetime Annuity and CD rates stink but we could do a laddered CD.
ANyone have other ideas, suggestions, warnings that might help?
I don’t know their real health, but if you think their time horizon is 5 years or less, I would be hesitant to put it in anything other than a CD or an online high-rate savings account. Those are usually pretty close in returns.
Maybe half in bonds or something like that. Real estate and stocks are too risky.
If the primary requirement is to provide for a 90-year-old’s needs, at that age any risk to capital is inappropriate - so no stocks, no real estate, no long-maturity fixed income. Put the money in short-term Treasuries or short-term FDIC-insured fixed income.
The fact that interest rates are low does not stink. It’s a positive. Interest rates are low because inflation is low. The issue is how much the purchasing power of your money is eroded over time, and that’s a function of the difference between the inflation rate and interest rates, not their absolute level. The effective difference is considerably smaller when rates are low if you have to pay tax on interest income.
That’s excellent information I can share with the famiy, thank you!
Quick check and it seems T-Bills are competitive w/ CD rates. Years ago I purchased I-bonds through Treasury Direct, when inflation was high (?)I keep forgetting about them!
CD usually yield a little more, but the interest is subject to state tax, whereas Treasury interest is not. Both are subject to federal tax, if they are not in tax-exempt accounts.
CDs (provided they are FDIC insured) have no more credit risk than Treasuries, but they may not be liquid if you need to raise cash unexpectedly before the maturity data - you may end up having to pay a significant penalty to sell them early. Whereas Treasuries are extremely liquid and you can sell them instantly. You have a substantial amount to invest - it might be worth setting up a brokerage account. Fidelity are very good for fixed income, if you’re buying and selling Treasuries with them for $50k+ the transactions costs for buying and selling are very low, so you don’t have to worry too much about setting up a latter that exactly matches when he will need the cash.
On the other hand, it might be simpler for you to just deposit it with an easy-access bank savings account if you can find one with a good rate relative to short Treasuries. It’s not something I’ve shopped around for, so I don’t know what rates are like. You will be protected by FDIC insurance there too, provided you don’t put more than $250k with one institution.
I’m not sure if you should lock up the money in T-Bills or CDs since they might need the money before the maturation date. Whatever few percent the money will grow may not be worth having the money locked away. Maybe just put some of the money in short term CDs and keep some of it liquid. But you may not want the money too easy to get at. Sometimes seniors get taken advantage of and will send their entire bank balance to some scammer.
Do you have access to an independent financial advisor through work or anything? They might be able to provide you relevant information to your situation. But go with someone independent who doesn’t make money from your investment. Many advisors are essentially salespeople who make commissions from your investment.
And by comparison a quick google inidicates that there are several well known names offering instant access saving accounts that yield 1.7%, FDIC insured. That’s probably your simplest option, just check the fine print on terms and conditions, whether there are any limits on withdrawals that might be a problem, or whether that’s just an introductory rate or something.
I can sell any one of my T-Bill holdings in (literally) a few seconds for a cost of no more than a couple of basis points, and the money will be cash in my account the next business day. T-Bills are the benchmark for liquidity.
Some employers provide access to independent financial advisors as a benefit. In that case, it wouldn’t cost anything to get their advice. But even if it cost a few hundred dollars, it might still be worth it. They could come up with a plan for what to do with the money and which safe accounts would be best. That person would also be able to go over any tax consequences of having the money, how access to government benefits might change because of asset value, and ways to minimize the tax consequences of using the money. They could also give advice on how best to structure the money when it comes to distributing the estate. As you mention it will be pretty simple advice, but it can still be helpful to deal with a single person one-on-one for the kinds of questions which will come up.
I’m not sure of the rules now but, after consulting with an elderlaw attorney, my mother started “paying” us for doing chores for her. As we had previously agreed, all this pay went into a joint account that my brother administered. We understood the money in that account was strictly to be used should Mom end up in a nursing home and need money for stuff outside of nursing home expenses. When she died, whatever was left in the account was to be split equally amongst us.
We did this because my grandmother ended up in a nursing home and she lived there many years with several medical issues, none of which were bad enough to kill her. When she sold her house to move there, we watched her money disappear into some pretty incredible expenses and we could do nothing to stop it. Finally, when she was destitute, Medicaid kicked in to cover her expenses but certain comfort items were denied her unless we kids and grandkids wanted to pay for them. So when my Dad landed in a nursing home, my mother decided to meet with an eldercare lawyer to determine what would be best for her (she was healthy at the time) to protect her own money. Dad died (Alzheimers) fairly soon thereafter but by the time Mom’s previous cancer came back to kick her butt, we had a good plan in place for her money.
A Bill is a Treasury instrument with a maturity of a year or less. Longer maturities are called Notes and Bonds.
Coupons and yields are expressed in annual terms - so yes, 2.5% yearly.
You cannot cash in any of these instruments before maturity, but there is a highly liquid secondary market in which you can easily sell them to somebody else. But although the liquidity in that secondary market is good, that doesn’t mean that the price doesn’t move around. The secondary market will adjust to reflect rising or falling interest rates. Suppose, when interest rates are 2.5%, you pay $100 for a 30-year bond with a 2.5% coupon. A year later you want to sell it, but 29-year interest rates are now 3.0%. This means an investor can now buy a new bond in the primary market (direct from the Treasury) at a price of 100 with a coupon of 3.0%, so he will not be willing to pay 100 for your bond that only pays a 2.5% coupon. Therefore the secondary market price of your bond will have dropped substantially, to about $90. The secondary market buyer will only pay you $90, even though the Treasury will still pay back $100 at maturity. That’s because the way the math works out, the $10 (10%) price discount makes up for the difference between a 2.5% coupon and a 3.0% coupon over 29 years. This sensitivity to changes in interest rates in not always bad news, though - if interest rates have dropped to 2.0% when you sell with 29 years to run, the secondary market will pay you about $110 for your 2.5% bond.
If you think about it, you can see that the sensitivity of the secondary market price of a bond to changes in interest rates will be greater if the bond has a long time to maturity, because the bond must adjust in price enough to compensate the secondary market investor for a larger number of annual coupons. This sensitivity is called interest rate risk. A U.S. government bond has no credit risk - the government will always pay you back at maturity. But interest rate risk means that the secondary market price can still fluctuate dramatically in the interim if interest rates change.
Because of interest rate risk, buying a 30-year bond can be as risky as buying stocks. The price of a 30-year bond can easily drop 20% if there is an inflation shock and rates rise substantially.
That’s why for a 90-year-old’s needs I recommended T-Bills, with a maturity under one year. These have very little interest rate risk, because their maturity is so short. The secondary market price will be very stable. You should always invest according to the time horizon when you will need to use the money. In the case of a 90-year-old, that’s within the next few years, so he should not be invested in instruments that might achieve better returns on a 20- or 30- year time horizon, but which might also fall substantially in price in the short term.
Not by a long shot. Except in my case I plan on wording it as “investment property and medication”; it sounds a little more dignified befitting a 90yo me.
I agree with most of the advice here — just park it in an MMA or very short term CDs.
If you don’t know about bankrate.com, you should – it will help you find the highest rates in the country. There is no reason to insist on a local bank, because internet banking is usually easier and faster than standing in line at a local bank, especially for old people.
