Case Study #16: Helping dad with an inheritance

Photo courtesy of Van Trapp Farmstead

It has been a long time since we’ve done a Case Study around here, but recently I responded to an email that feels like a good one to share with you.

It reflects an interesting dilemma and it allows me to, mildly at least, suggest something I have never recommended before.

That something is an annuity and, before we go any further, let me just list a few significant reasons these are not things I favor.

  1. The world of annuities is an exceedingly complex cesspool of high cost products.
  2. When you buy one, your capital is gone forever.
  3. You are tying your income to the health of the insurance company that issues your annuity. How Strong is Your Insurance company?
  4. While there are state codes that step in if the insurance company you buy from runs into trouble, that happening would still be a big deal for you.
  5. Inflation. If you buy an annuity that pays, say, $500 a month and you live for 30 years; that $500 is going to buy a whole lot less then than now.
  6. To be sure, you can buy an annuity that adjusts for inflation. But the monthly amount it will pay will be less.
  7. If you have a partner you’ll want to buy a joint and survivor annuity so it will keep paying even after one of you dies. Again, you pay for this with lower monthly checks.
  8. A simple mix of my favorite funds – VTSAX and VBTLX — will likely be able to pay out as much and, at the end of the day, your heirs will still have the capital.

There are probably some other reasons not occurring to me just now, but this should be enough to make you wonder why in this case I would even bring them up. Well, read on!

Oh, and if those other reasons occur to you, please point them out in the comments.

Here are the emails with “Mike”, edited for clarity and to protect privacy.

Dear Mr. Collins,

I hope this email finds you happy and healthy.  My name is Mike, and I’m your New England “neighbor” messaging you from Vermont.  I really have no expectation in sending this email so whether I get no reply, or “sorry, too busy” or a 6 page detailed response, you will continue being a hero of mine and someone that I admire greatly.

I was introduced to you/your work when I listened to your interview on the ChooseFI podcast.  I then frantically bought The Simple Path to Wealth which I have now read three times and bought numerous copies for friends and family.  I love your knowledge and advice, and equally impressive is your witty, approachable way of writing and breaking down concepts.  You (along with others to be fair) inspired me to become an Accredited Financial Counselor through the AFCPE. 

I’m 34 years old and have been investing with a long term mindset since I was 25.  I consider myself pretty money/investment savvy but I am facing a situation that would certainly benefit from your perspective.   

Before you read on (if you are still here), I know that your time is valuable and I happen to know a family that values good, local food, producing maple syrup and exceptional artisan cheeses.  Both will be coming your way if you have a moment to respond. 

(OK, flattery and bribery. Great start! 🙂 JL)

Here is the scenario…

      • My father is 76 years old, he is terrible with money and he is single.  If he has access to it, he’ll spend it (on bad “investments” like cars, etc).  He does not work.  He is a Vietnam Veteran who would never tell someone that he is a Veteran.   For most of his adult life he has received $3,000 per month from a trust that his parents set up.
      • His mother passed away 6 months ago at the age of 99 so the remainder of the trust has been distributed to him and his brothers.  ~$300,000 each.  
      • He has no traditional retirement savings.  He is receiving social security, a small pension like disbursement from being a D1 hockey coach early in his life and then a small amount $200-$300 per month from a single family rental property he owns in New Hampshire.
      • My goal is to try to set him up for success, to make that $300,000 last and potentially have something left over for him to pass along to me and my two sisters when he is no longer with us. To be clear, that last part is HIS goal.  My sisters and I are primarily concerned about him outliving his money, anything “left over” is not an expectation.
      • He would like the money to be invested, with a monthly distribution of $2,000-$3,000 dollars.  I’m working with him to try to see if he can reduce some expenses to reduce the distributions, hence making the money last longer; but I’m not sure that that is going to happen, at least in the short term.
      • Just last week I sat with him and we opened up a Vanguard traditional brokerage account (which I believe really is the only option since he does not have earned income).  Next step will be to transfer the $300,000 into Vanguard and set up his monthly disbursement from the cash money market account associated with it.  

Where I could use your insight is exactly how to think about this $300,000 in the context of a 76 year old. All VTSAX?  Half  VTSAX and half  VBTLX?  Should I look specifically at a dividend producing Vanguard account given his situation?  Should I keep one year ($3,000 x 12 = $36,000) in the cash fund for his disbursements over the next year and invest the remainder?  With the economy looking as it is, should I invest 50% and keep 50% in cash given his age?  I know exactly what I would do with $300,000 at my age (VTSAX and look the other way) but I’m having a hard time given his age and the short to medium term outlook of the economy/market.  

I am FULLY aware that you do not have a crystal ball and that there are many disclaimers that come with any type of guidance or suggestion.  

(Again, great inclusion. 🙂 JL)

In the end, my father and I will make the decisions that we feel are best.  I just want to make sure I am considering perspectives beyond just my own.  Yours is one that I value deeply.

Wishing you a great summer and most of all, thank you for your dedication and contributions to the world of Personal Finance.  I am just one of the many that you have impacted greatly.




Hi Mike…

Nice to meet you.

Truth is, I almost never respond to questions like this as I simply don’t have the time anymore.

But, for whatever reason (Flattery? Bribery? LOL), yours caught my attention. I may even use on the blog as a Case Study. You don’t have to send me anything.

BTW, we are no longer in New Hampshire. 

OK, a couple of things jump out…

      • Given that his mother lived to be 99 and that you don’t mention any health issues, at 76 your dad has a long time to live. Just to use round numbers and for this exercise, let’s call it 20 years.
      • There is no reasonable investment I know of that can reliably generate $2-3000 a month/$24-36,000 a year from $300,000. Those amounts represent withdrawal rates of 8-12%
      • Your dad is terrible with money. 
      • You and your siblings don’t care about an inheritance. 

Idea 1:

If you look at this post and follow the link in it to the charts from the Trinity Study, you’ll find a variety of expected results from various allocations, time periods and withdrawal rates. For instance over 20 years…

      • 100% Stocks, 8% per year survives 86% of the time. At 12% this drops to 51%.
      • 75/25 Stocks/bonds, 8% per year survives 89% of the time. At 12% this drops to 43%.

Of course, no one can predict the next 20 years. But this provides as good a guess as you can reasonably expect. You and your dad could pick an allocation and withdrawal rate in this range and roll the dice. You’ll also want to factor in a closer guess as to his life expectancy based on the factors you both know better than I.

If you do this, VTSAX for the stocks and VBTLX for the bonds would be the funds I’d use.

Idea 2:

You could just take that life expectancy guess, put the money in a money market fund (cash) and pull it out each month. $300,000 / 20 years = $15,000 / 12 = $1250. Of course, you have no inflation protection here and that $1250 will buy a lot less 20 years from now. It is also less than his $2000 a month goal. (that would last for 150 months/12.5 years) But this is the sure thing.

Idea 3: 

A simple annuity. 

Since your dad is terrible with money I am concerned about his actually sticking to ideas 1 & 2 without raiding the cookie jar.

With an annuity, he gives the money to an insurance company (or a charity). In return, they send him a monthly agreed upon amount for the rest of his life.

Some key points to bear in mind:

      • The world of annuities is a fee heavy, complex cesspool. You’ll need to be very careful.
      • You are looking for the simplest, most basic, lowest cost version.
      • You want an insurance company that is fiscally strong.
      • A good fee-based advisor can help here. Fee based is important to avoid conflicts of interest. An AUM (assets under management) advisor is unlikely to recommend something like an annuity that removes assets from the portfolio.
      • Consider buying an annuity that adjust payments with inflation. As noted above, today’s money will buy a lot less in 20 years. Of course you’ll pay for this feature with a lower money payout.
      • Once you give the insurance company the money, it is theirs to keep. If your dad dies the next day, it is still gone.
      • Clearly, the longer his life span the better a deal this is.
      • You don’t have to worry about his fiscal behavior. He can spend every dime each month and a new deposit will show up the next.
      • He won’t be able to raid the cookie jar.
      • You and your siblings are guaranteed NOT to see a penny of the $300,000 as an inheritance.
      • A $300,000 annuity is very unlikely to pay out $2000 a month. At least given today’s interest rates.

Hope this helps!

JL Collins


 Photo courtesy of Van Trapp Farmstead


I can’t thank you enough.  Truly.  When your email came in, I yelled “JL!” and my wife came running down the stairs because she knew exactly what had happened 🙂

I would like to hold up my end of the bargain.  If you provide me with a mailing address, I will send some maple syrup and delicious cheese from The Von Trapp Farmstead in Vermont.

I’m happy to hear you’d consider using this as a Case Study. 

Now, here are some of my reflections on your email…

    • I never even considered an annuity.  Everything in my bones is anti-annuity, however, you did open my eyes to the fact that my fathers situation is one where they could be at least considered, so thank you.
    • I do think that a 20-year horizon is the right timeline to consider, generously.  The part I didn’t include is that his father died at 75 of Alzheimer’s and he has already had triple bypass heart surgery (about 5 years ago).  
    • All 3 ideas are good options because the alternative is scary.  If I didn’t insist on one of them, and help set up the accounts, the $300,000 would sit in his checking/savings and he would consistently “raid the cookie jar” and my guess is that it would just be stale crumbs in 3 years.  He is an incredibly kind, loving man but money and future planning are blind spots for him.
    • I’m going to discuss all three ideas with my sisters, but I am leaning towards #1, while also trying to work with him to really reduce his monthly expenses.  Thank you for reminding me of the Trinity Study. Those numbers are incredibly helpful and I plan to share them with him.

Thank you, again, for your time.  As you’ve made very clear throughout your life and career, time is our greatest asset and I couldn’t be more grateful for yours.  

All the best,



My pleasure, Mike…

…glad to help.

No need to send anything, but I won’t say no to Vermont maple syrup and cheese. 

My preference is option #1 as well, especially given this:

“…his father died at 75 of Alzheimer’s and he has already had triple bypass heart surgery (about 5 years ago).”  

That does make the 20 year timeline generous, but it also increases the chance of his money lasting for the remainder of his life.

The other thing to consider is that studies show people spend/need less as they grow older. 

So, I’d set it up to send him $2000 a month at the 8% withdrawal rate.

The big concern is he can still raid the cookie jar with this account. Any chance he’d agree to have you keep it in your name?

Keep me posted!




Hope all is well.  

There is a box of Vermont goodies on its way to you.  My personal favorite, and also award winning is the Mad River Blue cheese.  Enjoy!    

As for my father, we’ve made some great progress over the last couple of weeks.  Although we did not set up the account under my name, I’m the only one logging in (he doesn’t own a computer) and he is relying on me to set up his transfers, manage the account, etc.  I suppose he could call Vanguard and raid the cookie jar by phone, but we have a lot of trust between us so I guess that’s a risk I am willing to take.

After working with him to cut some expenses, we were actually able to set it up with only a $1,500 per month withdrawal.  We’ll see how that goes and adjust slightly up if needed, but it’s an encouraging place to start. 

We ended up deciding to keep $20,000 in Vanguard cash fund, then split the $280,000 with the 75/25 (VTSAX/VBTLX) allocation. 

We are feeling confident in this plan and, best of all, my father had immediate relief once we pulled the trigger.

A very sincere thank you, again, for not only acknowledging my email but taking the time to think critically about our situation and share some great ideas. 

Enjoy the rest of your summer, JL!  



Photo courtesy of Van Trapp Farmstead

Hi Mike…

Summer is off to a great start! The box arrived yesterday afternoon and we cracked open a bottle of wine and had cheese, sausage and crackers looking out at the lake.

Thanks to you and The Von Trapp Farmstead! Love this from their website:

“The early bird gets the worm,

but the second mouse gets the cheese.”

Thanks, too, for the follow up on your father’s situation. Sounds like you’ve hit on an excellent solution.

Not sure if you are going to spend down that $20,000 first or just hold it in reserve. Either way should be fine.

More importantly, $1500 a month is $18,000 per year. On the $280,000 invested this is a 6.4% withdrawal rate. Looking at the Trinity Study charts, this has ~96% success rate over a 20 year withdrawal period.

Given your dad’s situation, your plan should work just fine.





If you are considering any insurance product, this is an essential read: 

How Strong is Your Insurance company?


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  1. Mark says

    I’m a government employee and our state retirement system (99.9% funded) offers a 10-year fixed annuity. The idea is (or at least was) to bridge people from the earliest eligible date for retirement (55) to traditional social security eligibility (65 for some). You buy it with after-tax deposits that are capped at 50k per year. The effective interest rate is not bad but there is no adjustment for inflation. I don’t know if it is for me and I certainly would not go in whole-hog, but it might not be the worst move that could be made with a portion of the portfolio.

  2. Leonardo says

    The book “Die with Zero: Getting All You Can from Your Money and Your Life
    Book” by Bill Perkins has great insights on this subject. I really enjoyed reading it. It made me think in a whole different way regarding money and life.

    • George Choy says

      I found it interesting too. I’m already financially free and found I was being a bit of a hoarder with the cash, so I’ve bought forward some expensive purchases (like a brand new Land Rover Defender) to enjoy now instead of later.

    • Frugal Steve says

      I just started reading that as well (My wife got it from the Library and conveniently gave it to me to read. Probably, her effort to get me to loosen up a little while our kids are still young). It’s definitely made me think about how I can better balance my spending and saving in a way that allows me to take advantage of important moments along the way. My best friend’s grandfather passed away from cancer when we were around 20 yrs old. He had a very lucrative career and had just retired a few years earlier and planned on spending his retirement golfing and relaxing. Before he got too bad he sat us down and said: “Boys, I saved everything until the end and look at me now!” I’ve thought about that a lot over the past 18 yrs. I’m a natural saver and have a hard time making “frivolous” purchases. I just turned 38 and my oldest is 11. I’m realizing that my time is limited with her and her brothers and hope I can find a decent balance between saving and spending on important things.
      JL I’d love your perspective on that book. Maybe you could do a book review as one of your future posts?

  3. Paul R Carlos says


    Thank you for this Case Study report. It was especially helpful seeing the followup exchanges and how the extra information changed the recommendations in nuanced ways.

    I look forward to your next book.

    Paul R

  4. Kristine Kiser says


    Once I saw this case study in my email I was excited to get home to read it! You’re writing style makes me smile every time. In fact I’ve re-read your books just to get a laugh when I’m feeling a bit down! Plus I’ve recommended them to others countless times.

    Mike, you are so kind to help your father knowing he’s bad with money and presenting his situation with even more kindness. This is nice to see, he’s blessed to have you as his son.

    Best wishes,

  5. Beth S says

    There’s no mention of selling his rental property in New Hampshire, and how much he draws from Social Security.
    It seems like these would supplement his monthly income from Vanguard.

  6. Margaret Loss says

    An annuity issued by a charity is probably not appropriate. My understanding is that charities set annuity payout rates so that approximately 50% of the initial amount will be available to the charity at the annuitant’s death, according to an appropriate mortality table. This is why there is a tax deduction for charitable annuities.

  7. Chris says

    Refreshing to see a different kind of case study. There are many of us with elderly parents we are trying to help these days. Thanks for doing this, I am sure you helped a lot of people today, including me.

  8. Steveark says

    I’m not sure if inflation adjusted annuities are still available. If they are I suspect they cap the max inflation rate adjustment far below current inflation rates.

  9. Froogal Stoodent says

    An interesting case study! Thanks to JL and Mike for sharing!

    This provides a good reminder that not everybody is as wise with their financial decisions as members of the FIRE community – and it’s also a reminder of why things like annuities exist.

    I’m in the same boat as JL – I’m not terribly impressed with annuities in general, since I could probably do just as well (or better!) on my own. But for some people/situations, they make a whole lot of sense.

    For any who may be considering them – Paul Merriman recommended Stan the Annuity Man as a place to get good information on annuities. If Paul Merriman says he’s a good source of info, then I believe him. 🙂

  10. A reader says

    Hi – no need to publish this but just some feedback if you are interested. I really enjoy your column, admittedly I do not read it regularly, so it would be helpful if the posts were dated at the top. Unless I am missing that somewhere? When I pull the up the site I like to see if I am reading the most recent one. Anyway, keep up the good work, and as Ted Lasso says – I appreciate you!

  11. dandarc says

    My comment from a few weeks ago never posted – probably the link to a specific annuity quote. When you’re buying at 76 years old, you actually can get that $2,000-3,000 monthly payment when puchasing a single-premium immediate annuity.

    SPIA being pretty much the only annuity product worth even considering – simple and well understood enough to be commoditized to the point where you can just shop easily online for best price. On the whole annuities are a cesspool, but this is one exception and the person described in the case study is probably as close to a perfect fit for a SPIA as exists out there.

  12. Rah says

    Hi JL,

    Thanks for the timely advice, as usual.

    I had a quick question. My dad passed away last year and left my mom with a Fidelity portfolio of 48(!) holdings. He was paying ~1% active mgmt fees, which I told my mom to stop. Now she’s left with this mess of a portfolio that seems to pretty much mimic the total stock market anyway, except with higher expense ratios.

    Are there any articles advising what to do about something like this? I want to just get her into the few funds you recommend, but also wondering if it’s worth it given she will have to sell off all these holdings first.

    Any advice would be much appreciated, thank you!


    • Froogal Stoodent says

      Hi Rah,

      I’m not JL (and certainly don’t have his wisdom!) but I’ll give it a try.

      Your comment didn’t mention whether it was a brokerage (which is subject to taxation) or an IRA / 401(k) / other type of tax-advantaged account.

      I’d say the best choice will probably depend on the type of account, as well as the size. If the account in question is less than $100,000, any changes you might make aren’t likely to incur an overwhelmingly large tax bill. But if the account has, say, $2 million, that’s a very different beast!

      You may also want to consider your mother’s expected longevity, and how badly she hates taxes.

      My initial reaction is similar to yours: if you’ve got essentially an index fund anyway, better to just go with an actual index fund and save the annual fees. Fidelity has a zero-expense-ratio US stock market fund, FZROX. You can find information on that via their website:

      Depending on the specifics, that COULD result in substantial savings! (Which would actually be reflected as higher returns, so you and your mother probably wouldn’t actually notice the savings, but I digress)

      If – IF – you make changes to simplify things, I actually favor a slightly more complex portfolio than JL. One, I’d advise including an international component for your mother’s holdings. This will reduce the country-specific risks involved with holding stock in a single country, even one as mighty as the USA. After all, history shows that weird stuff has happened before, such as shutting down the stock market during a war, or an unexpected natural disaster affecting a country’s financial center, or a colossally stupid set of new laws. Such things might not be likely, but they’re worth guarding against, especially if your mother’s portfolio is substantial. Two, your mother might consider including real estate (if it’s not already part of the portfolio), because of its relatively modest (0.60-0.70) correlation with the stock market but similar historical returns since 1972 – not to mention its strong income potential, since REITs must by law pay out at least 90% of profits as dividends.

      Some good options for this, staying with Fidelity funds:
      -FZROX (total US stock market index fund, 0 expense ratio)
      -FTIHX (total international stock market index fund, 0.06% ER)
      -FXNAX (US bond index fund, 0.025% ER)
      -FBIIX (international bond index fund, 0.06% ER)
      -FREL (real estate investment trust index fund, 0.084% ER)

      You could split the allocation equally (so 20% to each), or make changes to better suit your mother’s goals.

      The real key here is the type of account. If the funds are held in a brokerage (read: taxable) account, and your mother wants to make these changes, she could be hit with a five-figure or even a six-figure tax bill!!! I’m guessing she’ll want to avoid that!

      If these funds ARE held in a taxable brokerage account, an experienced financial planner can help devise strategies to minimize the tax impact while suiting your mother’s goals (e.g. making small changes slowly over time, tax loss harvesting, charitable gift annuities, etc.)

      But if the funds are held in a tax-sheltered account (like a 401k), she should be able to make the changes without much worry.

      In any case, you and your mother would almost certainly benefit from meeting with an experienced professional to help you decide what’s best. At the very least, meet with a CPA to review the tax implications of your plans BEFORE making any changes. The accountant’s fee is going to more than pay for itself, in terms of peace-of-mind as well as avoiding potentially massive mistakes.

      • Rah says

        Hi Froogal,

        Appreciate the thorough response! It’s very helpful. The portfolio is definitely sizable and would incur a big tax bill, since a lot of it is in a brokerage account vs. IRA.

        I think spending some time with a CPA would be good.

        Thank you!

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