As our mothers increase in age, chances are they will receive some kind of windfall. This can be from an inheritance, a life insurance policy, downsizing a home, or cashing in a 401K.
As the son or daughter, you will want to ensure this money lasts until the end. Most people will turn over the money to a financial advisor, but is that the best solution for your family?
Do you want someone involved with no vested interest in your mom’s long-term outlook or her ability to leave generational wealth to her family?
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What are mom’s fears? I am 41 years old, so my parents are getting older. I also have aunts and uncles who have received windfalls, and there is one common theme—they fear finances.
Before our mom moves forward with any financial plan, she must determine her financial fears. Her number one fear is running out of money.
Her second fear is being unable to assist one of her children or grandchildren. Moms will always try to help their families, sometimes to their own detriment.
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Therefore, our job is to work through these issues over time. Our moms have been alive longer than us, and they will not change overnight.
For today’s scenario, our mom will receive $500,000 in cash. We will need to ensure she feels good about her cash on hand and our investment choices. Let’s begin.
What are mom’s budget and cash flow? The most critical word in finances is cash flow; thus, we need to figure out mom’s needs.
How much money does mom need, and how much does she receive? Let’s say mom’s budget is $5,000/month, and she receives $5,000/month from social security, a pension, and an annuity she set up earlier.
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This budget means mom is living paycheck to paycheck—what are our options? Depending on mom’s age, she will need to move in with another family member or us.
Yes, parents are stubborn, but life is tough during an inflationary period. She will outspend her budget in six months if she attempts to live alone.
They say, “you are as successful as the number of tough conversations you have.” This will be a tough conversation. But let’s assume you successfully get her to move into your place.
Reducing her expenses and saving the difference. With her move, mom frees up $2,000/month in cash flow. Now, we must convince her to save some of the difference.
The next step is determining her long-term goals and dreams. What does she want her life to look like over the next five and ten years?
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For example, she may want to travel heavily over the next five years or ensure she can fund her granddaughter’s college tuition.
After setting aside those resources, we can implement the proper investment strategies. The first stop is a high-yield savings account.
Protecting her legacy. If mom has enough cash flow to survive, then we must preserve the legacy she wants to leave.
Assume she wants three grandchildren to have $100,000 each when they start college. We must give her smart options on where to stash money or invest in growth vehicles like index funds.
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We can also discuss buying series “I” bonds for the grandchildren or investing in 529 savings plans. We must stay abreast of as many options as possible.
This may be out of your comfort zone, but it is time to learn. If we try to leave these complex plans to a financial advisor, they may slowly degrade over time. At the very least, we should know the overall scenario before handing it over to someone else.
Let’s buy bonds together. With her legacy intact, mom needs her remaining money to earn a yield. Hopefully, we tucked at least $100,000 from her windfall into a high-yield savings account, making 3.3% currently.
At 3.3%, her HYSA will pay her $275/month—which is a lot of money for taking zero risk. Mom may want to purchase some life insurance from this additional cash flow.
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But what can we do with the remaining cash? Mom does not want to invest in the stock market, so we have limited options for yield.
We must turn to 30-year bonds to give us a decent interest rate with no risk. If we can secure 30-year bonds over 4%, perhaps even 5%, we will be in good shape.
We can’t beat inflation. At the current inflation rate of over 7%, we cannot beat it with no-risk investments. Therefore, we must reduce our lifestyle to overcome the 3-4% income we will lose annually.
Mom should understand living below her means, plus she will be staying with us. Her HYSA will give her some additional cash flow as well.
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Let’s say she invested $300,000 in 30-year bonds; how would the cash flow look? If we received an average of 4.5% on our bonds, that would give us roughly $1,100/month.
Between an HYSA and 30-Year bonds, mom would earn an additional $1,400/month with no risk. However, 30-year bond prices can rise and fall if you attempt to sell them at auction.
The magic of high-yield bond reinvestment. Mom may want to protect capital at all costs, but we can reinvest at higher yields.
If we can get mom to reinvestment $500/month into bond closed-end funds over 10%, she would beat inflation.
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If mom built a $30,000 income investing portfolio over five years, she would earn over $300/month in additional revenue.
It may be tough for her to invest in high-yield, but you can show her that her original capital is safe. Once the cash flow starts coming in, she will trust the income investing system.
Ensuring the plan’s longevity. This may seem like a lot to take on as a non-financial advisor, but you can do it. Not only will you earn mom’s trust, but you can also ensure her wishes survive long after she passes.
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Financial advisors are great for retirement planning but maybe not for long-term wealth management. Rich people hire financial firms that protect their assets for hundreds of years.
We are not there yet, so we must take a vested interest in protecting mom’s wealth, ensuring she is content, and enacting her dream plans.
Conclusion. Mom wants us to take care of us, but more importantly, ensure the weakest of her family has support. She doesn’t worry about us because we are successful; she worries about the ones who struggled outside the nest.
High-yield savings accounts and 30-Year bonds will play essential roles in growing her wealth over time—even if she isn’t beating inflation.
However, we can convince her to reinvest some interest payments into higher-yielding bond closed-end funds. This will give her income and safety—a dream come true. Good Luck!
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