Case Study #8: Ron’s mother – she’s doin’ all right!

Yesterday I got a call from a good friend from whom I haven’t heard in a while. He’s a fan of the blog and, after a bit, he gently chided me for the infrequency of posts lately. It is always nice for a writer to hear readers complaining that there should be more.

Of course, I had many excuses. Other projects (some involving the blog!), re-certifying with the IRS and VITA, disappearing to Latin America and generally goofing off.

goofing off royalty-free-office-clipart-illustration-37094

But one of the more legitimate reasons is that as the blog has grown, so have the comments and questions. I’m grateful to receive them, but I’m also finding that much of the time and energy I have for writing here gets absorbed in responding. Not a complaint, but an observation. And a reminder, as I’ve said before, some of the best material to be found here is in the comments.

A while back I created this new section: Ask jlcollinsnh. There is fresh stuff up there almost every day now. So, if you haven’t already and are looking for more jlcollinsnh to read, check it out.

It is also a fine source for my Case Studies Series (see “categories” in the sidebar) including today’s.

This recent question appeared there and especially appealed to me. Ron’s mom, at 73, is certainly not an early retiree. In fact she didn’t even choose to retire. After 35 years her firm kicked her to the curb, with a lousy 12 week severance no less. It can happen to anybody. It has happened to me.

Fortunately, she was financially prepared and as it says in the song, she’s doin’ all right.

Her son writes:

Hi Jim,

My mother is 73.5 years old and was just terminated after a 35 year career as a legal secretary in Manhattan. She has saved pretty well and I just want to throw some numbers at you to see what you think.

She has 491K in a traditional 401K from her job. My brother has been managing those investments fairly conservatively within the plans offered and he made an 11% return last year.

She has 225K in a traditional IRA and her friend’s son has been managing the money and charging her .75% annually. He did not do as well and probably lost 1 or 2% on top of his fees last year.

He is also managing about 61K in a Roth for her as well. He is a bit of a pessimist and has her in gold among other hedge type investments.

Her expenses have been about $3K per month although that may rise with extra time on her hands. She has a pension of $900 per month and collects $1600 per month from social security.

She owns her coop apartment outright. She has 12 weeks severance and can then collect unemployment. She will now be responsible for her own health insurance.

How would you invest this money to keep it safe and make it last another 20 years?

Thanks so much,


My reply:

Hi Ron, and welcome!

To start off, your mother is in excellent financial shape.


Her annual expenses are 36k. She has 30k in income from her pension and SS, and 777k in invested assets. Using the 4% guideline these assets can provide another 31k, for a total of 61k in potential annual income. Far more than it seems she needs, even if she were to dramatically increase her spending by, say, 33% to 4k per month.

Using VTSAX as a benchmark, let’s first look at how her managers did. This is the total stock market index fund and it returned ~33% in 2013. Of course, 100% stocks is way too aggressive for your mother, but it is a useful point of reference.

  • Your bother’s 11% return suggests to me he is managing your mother’s assets very, very conservatively, likely with a heavy bond concentration.
  • Your friend’s son, based on your comment and his negative 1-2% return in last year’s raging bull, suggests he is investing for Armageddon. A very poor strategy should Armageddon fail to arrive.

If you haven’t already, please take a moment to read “The Wealth Preservation and Building Portfolio” which is the second half of this post: Stocks –Part VI: Portfolio Ideas to Build and Keep Your Wealth.

In it you’ll find my reasons for the funds I’m going to suggest. You’ll also notice my suggested allocation percentages for your mother are much more conservative than those suggested in that post. My sense is you and she will sleep better, and with her assets she doesn’t need to pursue performance.

This is what I’d do were she my mother:

389k/50% VBTLX -bonds – current yield 2.2% = $8558 annual income
194k/25% VTSAX -stocks –  current yield 1.8% = $3492 annual income
194k/25% VGSLX -REITS – current yield 4.2% = $8148 annual income

Total annual income of $20,198, without touching principle.

This also represents a very conservative 2.5% withdrawal rate on her 777k. In addition, she’ll have bonds as a deflation hedge and real estate as an inflation hedge. If we do have a financial Armageddon, it will likely take one of those two forms.

This boosts her annual income from 36k to 50k, a 39% increase. With only a 2.5% withdrawal rate her portfolio will also continue to grow, likely leaving a substantial legacy for her heirs.

Hope this helps!

Ron’s reply:

Thanks so much Jim. My brother has read your response and is on board. We are firing the financial adviser and opening up new Vanguard accounts.

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  1. Maverick says

    I didn’t get far into reading when i concluded the same, firing that financial adviser. Fully concur with the recommendations. (This coming from an early retiree.)

  2. Danny says

    I agree with almost everything written above, but have one suggestion/comment.

    What do you think about rolling over the Roth IRA amount of 61K only into Vanguard’s version of a NY tax free muni bond fund? (Since I’m assuming she lives in NYC/NY area, since she was working in Manhattan):

    It is currently yielding 3.06%, plus has an almost identical expense ratio as VBTLX (0.12% versus 0.10%). Would be curious to hear your opinion as always 🙂

    • jlcollinsnh says

      Hi Danny…

      Very interesting suggestion.

      My concerns would be:
      1. it is a much more narrowly focused fund than VBTLX, both geographically and by bond type.
      2. Her tax bracket isn’t nearly high enough to take full advantage of tax free munis

      On the other hand the interest rate is higher and she does live in the very high tax state of NY.

      Ron and his mother might want to run the numbers on the impact on her NY state taxes and see.

  3. Pura Vida Nick says

    Fascinating stuff. I am only 30 years old and so my life situation is quite a bit different than Ron’s mother, but someday will have to deal with this kind of thing. Thanks for the good case study – I learned a lot!

  4. Linda van Zyl says

    We are firing the financial adviser and opening up new Vanguard accounts.

    Good call Ron! -1% is pretty poor performance with a 0.75% fee on top of it all.

    Great to see another article, Jim 🙂 Don’t be worried about scaling down your comment interaction if it’s taking up too much time, sounds like I should really go through the comments though!

    • jlcollinsnh says

      Thanks Linda!

      While I can see the time coming when I won’t be able to keep up with the comments, I consider it an honor when people take the time. As such I like to respond, especially to the questions.

      On the other hand, looking at this post for example, had I just left it in the comments section far fewer people would have seen it.

      The truth is, posts have greater reach than comment replies, and by extension have the potential to help more people.

      Tough call and tough to balance when/if the time comes.

  5. PFgal says

    Small typo:
    “This boosts her annual income from 36k to 50k, a 39% increase.”

    The 36k should be 30k. The other numbers are right – the math is fine, it’s just a typo.

    I’m very impressed with Ron’s mother’s financial position, and even more impressed that she was still working at the age of 73!

  6. Mark says

    Jim –

    Love your reader case studies. They are filled with such realistic and practical advice.

    I hope you have some peeps over at Vanguard reading your blog. They really should be sending you some free swag – like a nice sweatshirt or something!

    • jlcollinsnh says

      Thanks Mark!

      They are fun to do. If you haven’t already, check out
      It is basically a series of mini (and not so mini) case studies.

      Nope, no swag (not even a note of acknowledgement) from Vanguard and actually I’d be disappointed in them if they sent some.
      But, a note would be nice! 🙂

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