12

I feel like a financial idiot, and I'm worried that I might be overlooking opportunities and making big mistakes that I will regret later. So, I'm looking for a sanity check on my finances from people who're a lot smarter than I am.

I'm 70 years old, but I'm still working, because it's still fun. My salary is around $300K per year. I have around $5M in assets, including the house we live in, stocks (fairly well diversified), IRAs, etc. I receive about $4K/month from social security, and another $3K/month in pensions from previous employers. No debt.

Things that keep we awake at night are:

  1. Some disastrous taxation event that I don't know about.
  2. I expect to live well into my 90s. Will my money last as long as I do.
  3. My wife is only 50, and I want to make sure she is secure after I croak.
  4. I'm so dumb about this stuff that I'm probably doing something horribly wrong.

I find financial matters utterly boring, so I'm not motivated to do much research. I suppose I should get some professional help, but a friend of mine is a "financial advisor", and I know that all she does is recommend investments that provide her with the biggest kick-backs, so I'm very wary.

So, a few (related) questions:

  1. Do you see any big mistakes that I'm making? Big red flags?
  2. What financial disasters might arise, and can I guard against them?
  3. How does one find trustworthy financial help?
  4. Am I even worrying about the right issues?
12
  • 52
    You have $5M in assets. Hire a tax accountant, and a financial planner. You are in the wealth bracket where free advice should not be your ending point. Jan 11 at 15:34
  • 2
    While it's better to over-plan your finances rather than under-plan, don't put off things you enjoy because you expect to live well into your 90s - under 10% of 70-year-olds live to be 95+. An average person only becomes likely to reach age 95 once they're already in their 90s. High socioeconomic status and good family history can improve your odds, but a 70-year-old living to 95+ is statistically unlikely. Jan 11 at 17:55
  • 1
    IMHO the largest risk in this age is some health disaster that requires a drastic increase in medical expenses. Do you have good health insurance? Jan 11 at 18:15
  • Well, the current estate-tax threshold is about $12000000 .
    – S Spring
    Jan 11 at 18:27
  • 1
    What are your regular expenses? Jan 11 at 23:29

9 Answers 9

7

How does one find trustworthy financial help?

TLDR: Find a fee-only financial advisor that doesn't do commission business with anyone. Not my last guy, who said "Oh, you want a fee-based advisor? OK, pay me $2000 also."

I suppose I should get some professional help, but a friend of mine is a "financial advisor", and I know that all she does is recommend investments that provide her with the biggest kick-backs, so I'm very wary.

Correct.

I believe you have "the nut of it" right there. The fact is, for most people's needs, finance is not that complicated. Many vendors artificially make it complicated in order to confuse customers - so they will surrender and blindly follow the advice of people like your friend. The complexity is to hide overhead costs, which fund sales commissions.

And it worked - you are thoroughly convinced that finance is "too complicated for you to ever understand". It's actually quite simple, unless you choose to make it complicated either by gambling or by letting people fool you. John Bogle's book "Common Sense on Mutual Funds" makes the case that "one stock" is a gamble but "all the stocks" is a market. Markets do well overall, and the best way to make money is to cut costs. Your worst enemy is the 5% front-end load and 1.5% expense ratio of the average "stock picking" mutual fund. After all, that's a lose unless it lets the stock picker beat the market by >1.5%. Does that work? There's science on that! One guess what it concludes LOL. Anyway, that's what index funds are all about.

So yeah. Every complex product they try to make, is only a way to drive up those overhead fees, which benefit the offering company at your expense. When you hear words like "whole life" and "variable annuity" you're looking at one of those. Blending insurance and investment is a favorite trick: I say if you want insurance, just buy insurance.

"Boy, that makes things simpler!"

Step up to learn a bit - it's within your reach. Anything complicated is probably baloney.

Am I even worrying about the right issues?

You are. You're worried about money and not health. Very typical of age 70. You'll be singing a different song at 80 :)

Late-life healthcare costs a fortune.

I'm not talking "donut hole". You have health events. The hospital stays proper are mostly covered by Medicare. But the after-care is not. You end up spending a fortune on home health care aides ($25/hour before COVID), being in assisted living or skilled nursing ($150-400/day for months), etc. You are burning through your "nest egg" hand-over-fist.

Generally, Medicare assumes you have family for all that.

Even worse, if you are funding this with Traditional IRA, 401(K) and 403(B) withdrawals, that is taxable 'income' which means very high tax years. For some I know, the highest tax years of their lives. After watching this happen to them, I am fleeing Traditional and moving into Roth for this reason alone. With Roth, these "hell years" don't create anything special with taxes; the withdrawals aren't even a reportable event.

Won't the younger wife help?

Maybe, but that's not generally what younger wives sign on for. They expect the benefits of fine living in their young-midlife, and a well-financed "good life" after you're gone. They imagined spending their 60s doing world travel, not being a home healthcare worker. And it doesn't make sense to why someone with $5M doesn't hire home health care workers.

But it's more than that. Your wife will be very much thinking "How will MY medical be provided for?" That's a pretty good question, actually.

And the wife may also be uncomfortable seeing the expected inheritance being vaporized by late life medical spending.

So I would say it's important to research late-life medical insurance options for both of you to cover things like assisted living and long-term care.

Get to a quality independent living community.

Seriously. The #1 threat to getting to 90 will be an unexpected medical problem which is treatable. You live or die, or are disabled or not, based on whether EMTs arrive in 60 seconds vs 60 minutes.

That's where a good retirement community will save you. I took care of some elders who lived in a really nice condo type facility. They were on the same floor and a 3 minute walk from the main clubhouse. Every room had a pull cord, and yanking it brought on-site EMTs within 60 seconds. It worked. The heart attack did not lead to death. The stroke did not lead to long-term physical and mental disability. The fall did not lead to lying in extreme pain for countless hours. That's the stuff to be having nightmares about. "It's a good thing EMTs got to you right away" was a regular refrain from the doctors. This added 10 years to their lives. Having seen their experience, I wouldn't really contemplate aging any other way.

It helps to have a community that also has "assisted living" or "skilled nursing" units (or "memory care" read: Alzheimers care, but that would be more for your spouse's benefit; you won't care at that point.) The financial structure varies, but in some communities, if you move into one of those units, you can stay for life even if your financial resources exhaust.

I can tell you that very good communities of that nature were available to people whose life assets were less than $1M; I assume people with $5M have more options still.

"Independent living" communities are NOT decrepit. They are typically upscale condos (with some standalone houses like the Bay Area's famous Rossmoor) but with extremely well-behaved neighbors and no kids. A good fraction still work for a living. Many were "snow birds" who wintered in Florida or Hawaii. They are fabulous places to live overall.

3
  • Can't upvote this enough
    – littleadv
    Jan 12 at 2:31
  • Thanks very much. I expect I could understand finance if I tried. But I have far more interesting things to do. Spending my hard-earned life savings on health care is a terrifying thought. I think I have it covered, because I live in a place where health care is pretty competent and very inexpensive. An independent living community is good practical advice, but it's just not how I want to live. I have a house overlooking one of the most beautiful beaches in the world, and I can't see trading that for Rossmoor. Maybe I'll think differently in 15 or 20 years. Thanks again.
    – bubba
    Jan 12 at 5:06
  • @bubba Sure. I need to withdraw Rossmoor anyway, since they have no assisted living or SNF to transition people into. Still, take the small amount of time needed to learn finance basics. You don't need to learn to analyze stocks or anything like that., the lesson is "that isn't worth it". Jan 12 at 6:52
38

Some comments:

Some disastrous taxation event that I don't know about.

These are rare. Usually disastrous taxation events are well publicized in advance and require a lot of legislative work. Seeing that you mentioned IRA, I'm assuming you're in the US. In the US the political system is such that it's really difficult to nearly impossible to make changes to tax laws that would drastically make taxes worse for rich people.

I expect to live well into my 90s. Will my money last as long as I do.

You said you have 5mil in assets, that gives you almost 170K per year until you're 100 years old assuming no new income at all. Given that you have no debt, receive significant pensions and Social Security income, and still very gainfully employed - I don't think you have anything to worry about.

My wife is only 50, and I want to make sure she is secure after I croak.

Doing the math again. 100K/year until she's 100 years old. Still pretty comfortable IMHO.

I'm so dumb about this stuff that I'm probably doing something horribly wrong.

A 70 years old retiree earning 300K in salary can't be that dumb.

So, a few (related) answers:

Do you see any big mistakes that I'm making? Big red flags?

Not this random person on the Internet.

What financial disasters might arise, and can I guard against them?

Crooks and con artists that may want to prey on your insecurities. You're pretty wealthy and the older you get the more people would try to take advantage of you. Especially if you come at them with this "I'm dumb, save me" attitude.

How does one find trustworthy financial help?

That's the real question here. Reputation is important (referrals from long time clients). Also make sure that your financial adviser doesn't have any conflicts of interests (for example - they don't get paid by the funds they sell you). There are a lot of articles on this out there. A lot of big brokerages and banks will provide financial advisers to their wealthy clients - you should ask yours.

Am I even worrying about the right issues?

Given what you've accomplished so far - I don't think so.

5
  • 18
    Great points about crooks / con artists / scammers. Especially for senior citizens with a lot of money, that's probably one of the biggest things that can go wrong if they're not careful.
    – Daniel
    Jan 11 at 12:32
  • 7
    I know numerous people who love their money guy so much but it's because they seem nice and they have seen good returns, but they never compared their returns to index funds to know if they are even doing that well. Be wary of reputation as well.
    – Hart CO
    Jan 11 at 14:57
  • 10
    And avoid hype. Crypto is the current hype. You'll see them come and go. You have absolutely no need to buy into high-risk speculation because you just don't need it. Even if you win, you get basically "nothing" because there's really not a whole lot you can do with the extra money unless you do something dumb and excessive.
    – Nelson
    Jan 11 at 15:51
  • Thanks. The "financial advisor" friend I mentioned works for a big bank, so I'm not confident that my bank is a good source of advice.
    – bubba
    Jan 12 at 5:39
  • @bubba that's a goog point
    – littleadv
    Jan 12 at 5:42
18

The simplest advice would be:

Live today on your future means; both financially and physically.

If it's just the two of you in a 3,000 sq. ft home then consider building a perfect new and well-insulated 1,000 sq. ft ranch which won't need major maintenance until well after both of you have gotten use out of it.

Plan for accessibility everywhere; particularly grab bars in the bathroom. Place outlets 3-4 feet off the ground so that you're not bending over to plug in the vacuum in the future.

Have a single step-down from the house to the yard. This can easily become a gently sloped ramp in the future. Use 36-inch doors everywhere; a wheelchair isn't something that anyone actively "plans" to use.

Make sure you pick a location with public utilities like gas, water, and sewer so that you never have to seek out your own supply and deal with costly headaches.

Your biggest future expense is statistically going to be healthcare so the better you can plan for independence and accessibility now then the better off you'll be.

The financial aspect requires a competent advisor.


Additionally I'll just echo Michael's comment verbatim:

Living close to health care providers would probably also be a good idea. You don’t want to travel long distance for physiotherapy, dialysis etc.

5
  • 2
    Living close to health care providers would probably also be a good idea. You don’t want to travel long distance for physiotherapy, dialysis etc.
    – Michael
    Jan 11 at 21:21
  • this is a great answer, very nice
    – briantist
    Jan 12 at 0:14
  • Yeah, good point about the house. It's large, and I live in the tropics, where gardens rapidly turn into jungles if they're not properly maintained. And it's hard to find people to do the labor for you. We ought to simplify, but we dread the thought of moving.
    – bubba
    Jan 12 at 4:46
  • @bubba That dread will only continue to grow. You're 100% right about the labor issue too and in your later years good labor will gladly charge a premium. It sounds like you're well off enough to own two houses and downsize slowly over the next year or two before selling your current house. I would heavily consider it.
    – MonkeyZeus
    Jan 12 at 13:35
  • @Michael Thanks! I've added it to my answer
    – MonkeyZeus
    Jan 12 at 13:36
13

Given everything you've posted here, I suspect your biggest risk is dementia. Specifically, your mind going enough that you're able to be taken in by scams - which can go through your money pretty quickly.

Given you have enough current money to support yourself pretty happily even without your larger savings, I would consider putting most of that savings into a trust. You can make your wife the initial beneficiary, and appoint a few trustees whom you trust to act in her best interest - along with designing the trust to create an income stream for her with the earnings. Even were the trust to be invested in TIPS or CDs and produce a 1.5% or 2% return annually, that's still plenty of money for her to live on, when combined with social security and your pensions.

This provides you some protection from scams, while still ensuring it is around to benefit your wife. Do be aware this may create more taxes, though, on its earnings, depending on how you set it up - talk to an attorney who specializes in estate law and has knowledge of trusts and the tax consequences. Depending on the rest of your family situation, though, this may give you a great deal of flexibility. This doesn't have to be an all-or-nothing situation, of course - you can fund the trust with any amount.

You also could take some steps, short of a trust, which could protect your assets - such as requiring multiple signers to withdraw funds, for example.

No matter what you do, talk with your wife and any other family you have about your concerns, and about your wishes; and get as much down on paper as possible. This will lead to the best outcome in the long run.

1
  • Thanks. No signs of dementia, yet (though how would I know). I have heard of "trusts", but know nothing about them. I suppose I need to do some reading, or hire someone to do it for me.
    – bubba
    Jan 12 at 4:49
10

For point 3, I think you're looking for a "Fiduciary Financial Advisor". This is an advisor which agrees to a "fiduciary" duty towards you. You pay the advisor, and in exchange for that fee the advisor must act solely in your interest. Kick-backs would be a conflicting interest.

Of course, that still does not guarantee competent advice, or even prevent honest mistakes. That's basically a shopping question: among the fiduciary advisors, who has the best reviews, word-of-mouth recommendations, etcetera.

But look at it from the opposite point: you're an ideal client for the honest sort of advisers. They're looking for recurring fees, and they might advise you and your wife for decades. That's a decent deal for both sides.

Still, keep in mind that you're looking to buy advice. That advice should be something you get op paper, and for which you can also buy an independent second opinion. That doesn't mean you need to be buying second opinions for the upcoming decade, but do it until you're secure that you're buying reliable advice.

8

I'm 70 years old, but I'm still working, because it's still fun. My salary is around $300K per year. I have around $5M in assets, including the house we live in, stocks (fairly well diversified), IRAs, etc. I receive about $4K/month from social security, and another $3K/month in pensions from previous employers. No debt.

That's way more than most other people of your age have.

  • I expect to live well into my 90s. Will my money last as long as I do.

That depends on how you deal with your money. As you own the house you live in, your monthly costs are probably not so very high. Do you spend more than $7k per month? If not, your money lasts forever.

If so, you can spend whatever your assets gain on value, be it dividends or value of the items themselves. See below.

  • My wife is only 50, and I want to make sure she is secure after I croak.

If she loses you, the $7k per month will likely cease to be paid.

But, as you say, you have $5M in well-diversified assets. Let's subtract $1.5M for the house, then you have likely about $3.5M in stocks and other assets. Let's further assume that they give about 4% per year on average.

That means that these assets gain $140k per year which you (she) can draw out forever (in theory, without considering the sequence of returns risk). Again, that's quite a lot.

I'm so dumb about this stuff that I'm probably doing something horribly wrong.

In your situation, it might be the best idea to just do nothing.

4
  • 1
    "If she loses you, the $7k per month will likely cease to be paid." Doesn't Social Security pay benefits to the spouse?
    – Barmar
    Jan 11 at 15:36
  • @Barmar the max social security payment is only $2500 per month or so, and don't quote me on this but I don't think a non-disabled widow can collect anything until she turns at least 60.
    – stannius
    Jan 11 at 18:33
  • My understanding is that SS will pay "survivor benefits" to my wife. If I'm wrong about that, then I'm even dumber than I thought.
    – bubba
    Jan 12 at 4:52
  • I am not from the US, so I don't know about the details. My point was that even if the SS benefits will cease to be paid, there is nothing to worry about.
    – glglgl
    Jan 12 at 7:11
4

Some good answers already. A few additional points:

Some disastrous taxation event that I don't know about.

The main thing you will probably have to think about is "Required Minimum Distribution" for your tax deferred accounts (IRA, 401k) etc that kicks in at age 72.

It's certainly not "disastrous" but it's annoying and it can guide your withdrawal strategy.

How does one find trustworthy financial help?

That is indeed tricky. Most advisors get paid either by commissions or by an annual fee that's based on the size or your portfolio (typically 1% or thereabouts). Neither one is a good option: commissions create a conflict if interest and 1% of your portfolio is a whopping $50,000/year which seems excessive for a few hours of work. There is a third category which is "paid by the hour", where you can take as much or as little advice as you want or need. However, these are not easy to find. You could try starting here: https://www.forbes.com/sites/baldwin/2017/07/18/where-to-find-hourly-financial-planners/?sh=3411720f1612

I'm worried that I might be overlooking opportunities

You have no need to worry. Your financials appear to be in excellent shape so you can take a very safe approach. As long as you stay with "normal" investment vehicles (stock and bond funds or ETFs) and you don't buy a new private plane every year, your savings will be more than enough to enable a very comfortable life for you and your wife.

Sure, there may be ways to optimize your investment and withdrawal strategies but that needs to be compared to the stress and expense of doing the optimization. One data point as a reference: Simple automatic index funds outperform 90%+ of all actively managed funds. These funds are managed by highly paid Wall Street guys and even these apparently can't figure out how to "optimize" anything (despite their high cost and fees).

1
  • 1
    I didn't know about the "Required Minimum Distribution". This is exactly the kind of unknown that worries me. I wonder how many others there are?? Thanks.
    – bubba
    Jan 12 at 5:09
4

Think of the family dynamics first. What do you want most to happen; who is legally entitled to what, and what is at your discretion; do you not mind conflict, or it is the worst thing that could happen?

An estate plan, will, living trust, or other trusts could reduce any scramble for your assets when you are older and feebler. As for charity, would you rather be thanked now for estate commitments, or do you like the idea of leaving happy surprises in your estate when you die?

1
  • No family complications, I don't think. No other family, besides my wife, so it's pretty clear what happens to whatever I leave behind. I suppose I ought to write a will, though, to make sure.
    – bubba
    Jan 12 at 4:55
3

I'm so dumb about this stuff that I'm probably doing something horribly wrong

Anyone who can't say this about themselves is being dishonest. This stuff is extremely complicated, and changes all the time as laws get updated. Don't be afraid to call in the experts. Regardless of what income bracket you're in, any financial expert that's worth their salt will save/earn you far more money than they charge you.

First and foremost, I recommend that you find an accountant that specializes in retirement and estate planning. They can help you with everything related to taxes, inheritance, life insurance, medicare, wills, trusts, retirement accounts, etc. Think of your accountant as if they were your family practice doctor. They see the big picture and help coordinate things, and can call in specialists (estate lawyers, insurance agents, etc) as needed.

a friend of mine is a "financial advisor", and I know that all she does is recommend investments that provide her with the biggest kick-backs

As far as investing goes, the word you should be looking for is "fiduciary". If an advisor is a fiduciary, then they're ethically and legally bound to work in your best interest at all times. They have stricter rules about conflicts of interest and disclosure/consent for all their fees and commissions. Most advisors aren't fiduciaries, because they want to play games like you mentioned and earn big commissions (your friend's actions might be considered fraud if she was a fiduciary). Most fiduciaries operate on a completely fee-based system and generally don't operate in a broker/reseller capacity. If you're in the US, you can locate one on the NAPFA website.

1
  • Thanks for the NAPFA link. Now I have a place to look.
    – bubba
    Jan 12 at 5:15

Not the answer you're looking for? Browse other questions tagged or ask your own question.