Hold on a moment.  Is this portfolio too risky?  I'm not sure.  Somewhere in the mid 80's, people who have "enough" money in their eyes realize that they're not going to run out of money and invest to grow capital to leave a legacy. 

His portfolio is 70/30 and he was not withdrawing except for the RMD.  He is 86, so a 10 year time frame takes him to 96.  You say he's going to need to withdraw 50k/yr for the assisted living.  What was he living on before?  What happens to this income?  Is there a spouse?  What are you going to do with the house?  What's going to happen to the rest of his previous expenses?  How many of them go away?  His tax bill essentially goes away since the ALF is a medical expense b/c of his dementia.

This is a managed account with a lot of trading and it certainly may need to be differently invested with, possibly, someone else.  But, take your time, evaluate your options and get a better handle on your cash flow needs and options.  If and when selling, remember tax losses go away when he dies and anything you inherit gets a stepped up tax basis, although the medical expenses probably make worrying about  taxes a moot issue.  Evaluate the real needs and do some planning.

Roberta 

meyerr:

Hold on a moment.  Is this portfolio too risky?  I'm not sure. 

Really, you are not sure?  He said this:

"His portfolio is currently about $425k, down $50k over the past 6 months.  He just went into assisted living, and needs to begin drawing $50k/yr to pay for that."

He is 86 yo and has lost 10% of his portfolio in 6 months.  If his portfolio was $5M, then there still would be plenty of money left but with only $425k at 86, he can't afford losses like that.

meyerr:

Somewhere in the mid 80's, people who have "enough" money in their eyes realize that they're not going to run out of money and invest to grow capital to leave a legacy. 

If someone has $5M they have the luxury of doing riskier things with their money than someone with only $425k.  Personally, I don't know anyone who started doing risky things with their money in their mid-80's in order to leave a legacy.  If you do, fine, but I don't think that is typical.

I agree with Roberta that "risky" is not the right word.  There may be a better allocation of those funds in terms of both asset classes and diversification,  and there may be a better financial advisor, but given his age and circumstance, one can't measure risk from the few details provided.  The account may be excessively churned, but the mix may be OK. The S&P 5000 is down almost 8% over the past six moths, so 10% is not too alarming; what total return has the portfolio been  producing? What other income does he have besides SS?

I don't see how anyone can offer advice on the basis of only the information provided. I'd start by interviewing the current broker to more fully  understand his rationale and then get a second opinion from a well recommended fee based advisor, before taking any precipitous action.  Best wishes!
 

Thanks for all of your feedback and differeing perspectives.

With regard to Roberta's questions:

My mom died over 10 yrs ago.  My dad remarried, and his 2nd wife died 2 yrs ago, and left all her money to her sisters (prenup).  He owned the house independently before they were married.  His net financial situation, both income and expenses, did not change significantly when his 2nd wife died.  I've run through those calculations very carefully.

His only other source of income is social security, and the $50k that he needs to take out each year is net of social security income, and also net of the changes to his living expenses as a result of moving to assisted living.

The house is worth $300k at realistic current market value, but will take a while to sell, becuase of its location and recent new construction in the area which is still on the market.  He emotionally will not sell the house anytime soon, and will be reluctant to sell it at all.  If or when he runs out of money in his investment accounts, we clearly would need to look at selling the house. 

I'm not an expert when it comes to investment strategy, but my gut feel was that his portfolio was allocated for a 30 year old, not an 86 year old.  Some of the perspectives here have agreed strongly, and I appreciate the other perspectives.

This probably gives me enough feedback to justify at least talking with a couple of other investment professionals, and getting their perspective on the situation, and then likely moving the money management to one of them.

I would appreciate any other thoughts or considerations you all have based on the additional detail I provided, but I'm not sure that it changes the situaiton at all.

One final question - at this point in his life, does he really need a professional money manager, or could we move to a conservative mix (50% cash investments, 30% bond funds, 20% stock index funds) and save the $8k per year he pays the broker.

Thanks again for your help!

 

To be frank, if your father has Alzheimers and you're thinking about a revised portfolio that is 50% cash equivalents and only 20% in equities, I believe he needs a professional adviser. If you really mean cash and short maturity instruments like money market accounts and CDs, they are apt not to keep up with inflation.  That $50K is only the current care cost hurdle, which is certain to grow and likely  faster than inflation.

There are lots of risks and being too conservative is one of them.  The house is a disposable asset which can best be dealt with by the trustee or POA when the time is appropriate.

 I am in your Father's age group and am convinced that a properly diversified  portfolio can achieve a risk-adjusted  annualized total return of at least 8% over time.  Given the actuarial realities, your Father's net assets should prove adequate.  Going heavy to cash will make it harder.

I think you can accomplish this ROI or better by selecting a few good equity and bond  funds, plus cash management to meet current  expenses, thereby saving the $8K in broker fees. It would certainly be worth a one-time fee to first consult a professional adviser.  JMO and good luck

 

Firing the broker would be too kind.  I manage my 86 years young Mother's funds.  I say toooo risky totally inappropriate for some one that age requiring nursing care.  Previous posts with conservative allocations sound good to me but IMO leave 15-20% for some equity growth.

I agree with previous posts that your $50K is a conservative annual cost for nursing care.   Tracking my Mother's annual cost of living expenses assisted living was $41K and nursing care total annual cost of living is $81K in North Florida.  If you need to purchase personal care beyond that provided in the nursing facility you could add another $20-40K per year.  The costs beyond room and board including Rx, durable medical (not covered in a skilled nursing facility under medicare part B) etc continue to increase as her health slips.

Beyond the financial issues be sure that your father will be allowed to remain in the nursing facility if he runs out of money.  Many for-profit facilities will not accept medicare payments when the individual's funds run out and the resident must go elsewhere.  Many non-profits will allow residents to remain with depleted funds (if the networth on admission is acceptable to their admission requirements).  Be sure you know the answer to that important question.  I had one administrator dance dance dance around that question at a for-profit facility! 

To make the money management as easy as possible my Mother's funds are in 1 fidelity account for which I have power of attorney right (never a joint account, too much room for possible abuse and family discord).  I sell enough mutual fund shares to pay her bills for 3-4 months and at the same time adjust her asset allocation. Proceeds from the sale automatically transfer into her Money Market fund from which I pay her bills by online bill-pay.  The account also has checking for those Dr visits that require immediate payment.  Online dowloads into Quicken and I have full reporting capabilities and COL analysis.  It also keeps siblings at bay with complete accounting. 

Good luck and work toward a simple financial management solution you will need it.  It is a tough job but someone has to do it.  Handling my Mother's late year finances has helped me with modeling and preparing for my own retirement.

FWIW

oystereater 

 

FIRE THE BROKER. CONTACT HIS/HER COMPANY MANAGEMENT AND LET THEM KNOW OF YOUR DISPLEASURE AND POSSIBLE STEERING INTO RISKY SITUATIONS. aT HIS AGE WITH HIS PRESENT CONDITION, HE IS PROTECTED BY LAWS WHICH ARE VERY STRICT WITH SALESPEOPLE/BROKERS AND COMPANIES WHICH "ACCIDENTLY TAKE ADVANTAGE OF THE ELDERLY""  DO NOT ALLOW THEM TO SMOOTH TALK YOU, A PERSON WITH HIS CONDITION HAS TO BE PROTECTED FROM THE THOSE THAT TAKE ADVANTAGE. I KNOW I DEAL WITH ELDERLY FAMILIES AND USUALLY I ASKED THEM TO FILE COMPLAINTS AND NOTIFY THE SECY OF STATE  AND THE ELDERLY ABUSE ORGANIZATIONS IN THEIR STATE. DONT LET THEM SELL YOU AN ANNUITY!!!!!!!

JimBBBBB:

The house is worth $300k at realistic current market value, but will take a while to sell, becuase of its location and recent new construction in the area which is still on the market.  He emotionally will not sell the house anytime soon, and will be reluctant to sell it at all.  If or when he runs out of money in his investment accounts, we clearly would need to look at selling the house. 

Can you rent the house to help generate some income?

 

JimBBBBB:

I'm not an expert when it comes to investment strategy, but my gut feel was that his portfolio was allocated for a 30 year old, not an 86 year old. 

Absolutely more appropriate for a 30 year old.  The fact that he lost 10% of its value is proof - that is far too volatile for an 86 year old.

 

JimBBBBB:

 

This probably gives me enough feedback to justify at least talking with a couple of other investment professionals, and getting their perspective on the situation, and then likely moving the money management to one of them.

Try to find an hourly rate financial planner to consult with so that you won't have to worry about bias toward commission based products.

 

JimBBBBB:

One final question - at this point in his life, does he really need a professional money manager, or could we move to a conservative mix (50% cash investments, 30% bond funds, 20% stock index funds) and save the $8k per year he pays the broker.

I take it he pays $8k per year to a broker for an assets under management arrangement where he is paying a percentage of his assets?  That is waaaaay too much money for him to be paying IMO.

I think if you consult with an hourly-rate financial advisor, you can go over the pros and cons of various asset allocations for a lot less than $8k a year.  Then once you set up the portfolio according to the asset mix, you can consult with the financial advisor as necessary for a lot less than $8k a year.

How much a year does he get in SS and how much a year will he need to live on including taxes to be paid and maintenance/taxes on the house and medicare supplement, etc? 

I can't really tell from your post if he needs $50k + SS to pay for assisted living or if that will also pay for the house since he doesn't want to sell.

linlew:

FIRE THE BROKER. CONTACT HIS/HER COMPANY MANAGEMENT AND LET THEM KNOW OF YOUR DISPLEASURE AND POSSIBLE STEERING INTO RISKY SITUATIONS. aT HIS AGE WITH HIS PRESENT CONDITION, HE IS PROTECTED BY LAWS WHICH ARE VERY STRICT WITH SALESPEOPLE/BROKERS AND COMPANIES WHICH "ACCIDENTLY TAKE ADVANTAGE OF THE ELDERLY""  DO NOT ALLOW THEM TO SMOOTH TALK YOU, A PERSON WITH HIS CONDITION HAS TO BE PROTECTED FROM THE THOSE THAT TAKE ADVANTAGE. I KNOW I DEAL WITH ELDERLY FAMILIES AND USUALLY I ASKED THEM TO FILE COMPLAINTS AND NOTIFY THE SECY OF STATE  AND THE ELDERLY ABUSE ORGANIZATIONS IN THEIR STATE. DONT LET THEM SELL YOU AN ANNUITY!!!!!!!

I would contact whatever state agency protects the elderly.  $8k a year should at least buy you competent advice and I can't see how anyone can say putting an 86 year old with dementia and under $500k of assets in such a risky/volatile portfolio was competent advice.  That was reckless advice.  Did the broker get commissions on top of the $8k a year?

I would also contact a lawyer to see if you have any legal remedy to get back some of the $8k yearly management fees.

If you are going to sell any of those stocks, roll them over into an IRA at a discount brokerage so that you don't pay a dime more to the current broker.

More than a few people who post on these boards are brokers so keep that in mind if any posters defend what this broker did.