Portfolio Mix for an 85 year old woman

Some questions: What is the purpose of the portfolio? How much income does she need from the portfolio? What is her state of health? What is her risk tolerance? What is her current allocation, and what are her concerns about it?

Dave

Does she need current income? If so how much? Does she have heirs? Would she like to leave anything to her heirs?

An excellent portfolio for an 85-year-old can be had with zero percentage of those. Who is making these choices for her? Quo vadis? Follow the fees. Joe

considering high probability of death within 10 years or sooner, as liquid as possible, money market, CD, style, as opposed to anything of the equity type

both bond and equity markets may do poorly over the next few years

Are we in Canada? Then 0 to 20%, but Income Trusts are being phased out.

Bill

Her portfolio should be c. 80% fixed income: typically investment grade corporate and government bonds of short to medium term. For a US taxpayer, possibly some tax exempt bond funds (depending on tax rate and state of residency).

You can make a case for a small weighting in REITs (c. 10%) eg in a REIT index fund.

And also 10% in a money market fund.

Immediate annuities would probably be a good choice.

-- Ron

That's a very bold thing to say not knowing much more about her situation.

She may want to leave an estate, she may already have a pension, etc.

The OP didn't tell us enough to really make a good plan, but jumping to annuities (which may very well be suitable, at least for a part of that million) without knowing more is a bit much.

An 85 year old woman in my state can get an immediate fixed annuity which pays out about $144,000/yr. Of course, her heirs get nothing and that may be fine with her, but that's a pretty huge presumption and a pretty high payout (due very much to her life expectancy).

I'd say to work the other way around - what are this woman's actual income requirements - total up her cost of living (conservatively - meaning err on the side of her spending more, not less), subtract any existing pension/SS, then maybe find an annuity which pays that much and take there rest and invest separately - as conservatively or aggressively as she likes (since the rest is mostly play money plus insurance against inflation). ie. annuities may play a role, but they are likely only part of the story and we really just don't know enough to make better suggestions.

It's something that no one else mentioned.

She can give away $11,000 per year to each of her loved ones.

If she needs to go into some form of assisted living, she may well need up to 50% of that now, and 100% of that 10 years from now.

You're right that more information is needed. But that didn't stop others from commenting.

-- Ron

Fair enough and my comment wasn't meant only for you. Sorry if it seemed that way.

FWIW, the OP suggested IPOs and other things which are even harder for me to figure out how they ought to factor into an 85 yr old's portfolio...

Moreover, the more I look at things, the more I can see immediate annuities as likely to play significant roles in folks portfolios as they retire and beyond and I think they are somewhat underutilized at the moment. As the proportion of folks with real pensions diminishes, they make a lot of sense. Unfortunately, there's so much confusion about insurance products and such hideous (and usually inappropriate) hard selling of VAs that I'm afraid that folks hear "annuities" and may tune them out some, even the ones which do make sense. Thanks for bringing them up.

Well, it's $12,000, has been as of 2006.

I'm thinking she can give each of her 16 great grand children $60,000 into a 529 account, as these accounts permit a 5 yr look-ahead on gifts. That way she gets the growth out of her estate as well. A Form 709 is required, but no gift tax due, and her $1M credit is not tapped. If she dies before the fifth year, the prorated money is treated as part of the estate, but not any growth. This is a fast way to get $960K out of her estate. Of course she can still gift $12,000 to other descendants or anyone she wishes. JOE

replying to PeterL, jturnbo wrote: she does not need current income