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Work with an independent planner and you should find an asset allocation
model that will produce enough income and leave the principal alone.

"Steve Oster" <osterfurniturespambam[at]ameritech.net> wrote in message
news:0CMeb.23868$ev2.5066999[at]newssrv26.news.prodigy.com...
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In article <0CMeb.23868$ev2.5066999[at]newssrv26.news.prodigy.com> ,
"Steve Oster" <osterfurniturespambam[at]ameritech.net> wrote:

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In your planning you should recogize that your mother in law probably
recovered from acute pancreatitis and now has chronic pancreatitis. She
should anticipate additional attacks of acute pancreatitis which will
involve trips to the ER, stays in the hospital, possible 6 week periods
of IV feeding either at home with a visiting nurse or in a nursing home.
Appropriate diet and avoidance of stress can prolong the periods beteen
acute attacks.

Her investment strategy should take this into account (unscheduled large
co-pays and minimal fluctuations in asset values). She also needs a
durable power of attorney for health care and she and her children need
to have some serious discussions about prolongation of life vs. quality
of life. She and her doctor should discuss pain management. Now is the
time to do some funeral preplanning (not prepaying)

Without inflation she needs 12K a year (5.3% of her capital) and if she
sticks the money in her mattress she has almost 19 years of expenses
covered which, given her pre-existing condition, should more than
suffice. I would recommend either laddered inflation indexed bonds or a
short to mid term bond fund for about 80% of her capital and the rest in
easily accessed Money Market funds. Your mother should feel free to
indulge herself occasionally with things like a new TV, a low stress
trip to ?, gifts to the grand children etc. Unless it is important to
her (not her kids), leaving an estate should not be the dominant feature
of her life
--
Avrum Lapin avrum113[at]earthlink.net
Upland CA Remove NOSPAM from address

["Steve Oster" <osterfurniturespambam[at]ameritech.net> ] wrote:
[ 15 lines in misc.invest.financial-plan ]
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First off, your mother-in-law will have about $225,000 in assets to draw
from. Her monthly net (I assume after taxes etc) is -$1,000, which is
understandably high because of the costs of a senior apartment and health
care. Disregarding inflation and interest rates, the most simple
calculation would show that those $225,000 would last 225 months, or almost
19 years (again, disregarding nominal returns on those $225,000 and
inflation).

However; the costs of senior housing and health care are probably projected
to rise faster than inflation. This means that those $225,000 should
ideally generate some kind of return rate above the inflation rate to
compensate for this. Since your mother-in-laws risk tolerance is
understandably low in this situation, stocks, real estate and long term
bonds are completely out of the question. This essentially leaves money
market accounts, short/medium-term bonds and inflation indexed bonds.

This last option is worth looking into. Buying bonds which are guaranteed
to return 1.1 percentage points above inflation is one way to protect those
$225,000 from losing value from inflation alone. I'm not a US citizen, so I
am unsure of the exact numbers; someone else in the newsgroup probably has
more accurate data regarding these bonds.

So, let's make some assumptions and run a small simulation of what could
possibly happen. Let's say the inflation rate on average over the next
twenty years is 2%. Also, let the cost of senior housing and health care
rise on average 4% over the next twenty years; I'll simplify and let your
mother-in-laws monthly expenses therefore rise by 4% yearly. Meanwhile, the
income grows with inflation. I'll also assume that a 3.1% "safe" pre-tax
return can be made on those $225,000.

3.1% of $225,000 generates $6,975 of interest yearly. I do not know your
mother-in-laws tax situation, so I cannot say how much interest she will
receive after income taxes are paid. A fair guess would be that she would
still have a take-home interest payment of $5,000-$6,000 (again, other
newsgroup readers probably have more accurate estimates). This means that
in the first year, about half of the gap between expenses and income is
covered by the interest generated by the $225,000 invested.

The other half of the gap will have to be taken from sales of bonds,
reducing the invested portfolio to about $218,000. Then, assuming a 4%
growth in expenses and 2% growth in retirement income, the next year the
situation would be that a gap of $12,864. The interest generated by the
$218,000 would be $6,758, once again covering almost half of the "expenses
gap". The rest would have to come from another sale of bonds, once again
reducing the size of the portfolio.

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on interest income") may be incorrect, and these errors would grow as the
simulation continues. A quick excel simulation with the above parameters
nonetheless concludes that the $225,000 will last about 14 years.

What about the sensitivity of this analysis? Changing some of the expected
costs in the future, as well as the income growth, has severe effects on
how long a lump sum will last. If we say that the retirement income stays
constant at $1,600/month, the $225,000 will only last 13 years. On the
other hand, if expenses only rise with the rate of inflation at 2%, the
money will last 19 years.

I would really like some more information about this case, so that we can
analyse this a bit more thoroughly.

--
Joakim Persson
M.S. student, CS/CE [at] LTH, Lund, Sweden
Libertarian -- Heavy Metal fanatic
zaladin[at]home.se -- http://www.efd.lth.se/~d00jp

Hi all. My Mother-in-law is retired and selling her house, where does she
put the money?

She has just recovered from a long illness (pancreatitis) and is moving into
a senior apartment. She has about $25,000 in the bank, and should clear
about $200,000 (after expenses) from the sale of her house. Her monthly
expenses will be about $2600 / month, her income is about $1600 / month.
She is 74.

So, what would be an appropreate investment strategy?

Sincerely,

Steve Oster