My mom is retiring and needs help.

11 years ago

My mom is retiring soon and she doesn't exactly know how much she will end up with. She has stock that currently values about 108,000 and a 401k that values around 93,000. she has the option of selling her stock out right, or keeping it and drawing a dividend of about 500 every 3 months. She doesn't know how much she will actually get, because she knows that the government taxes this stuff but doesn't know the rates at which they tax it. She is 64 going on 65 soon. Any advice about how to handle this situation so she will be able to live and pay the bills and such will help. Thanks in advance.

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honeycombe8

11 years ago

Regarding the stock, it depends on what the stock is. Is it one stock, or a mutual fund? If it were me (and I'm an intermediate level investor), I wouldn't keep that much of my retirement savings in one stock. The dividend of $500 per quarter = $2,000/yr. That's a return of about 1.8%. But of course the stock will probably increase in value over the years (but will decrease in value some years).

Warren Buffett advises people who don't anything about stocks to invest in a total stock market index fund (VTSMX, which is Vanguard Total Stock Market Fund) is one of the biggest ones. That way, a person is invested in the total U.S. market, not just one stock. VTSMX also pays a dividend of about the same amt that your mom is getting now.

There are other things I'd do with it, too. I might buy into a second mutual fund, for instance. But only someone who knows your mom could advise that specifically.

If she wants dividends, if that's the goal, there are mutual funds that pay a lot higher than 1.8%. But you won't get the increase in share value there like you would with a total stock market fund.

It depends on what she needs. Income, or total return. Total return is something where she would have to sell some shares periodically to harvest the profit. Dividends are just income she'd automatically get.

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Comments (7)

User
11 years ago
Does she have a pension and social security? If she has a pension she should talk to her human resources to get an estimate of what she will be receiving. Contact SS also to see what she will receive. Do not be surprised if her SS is higher than her pension. Also check the tax forms in the state she resides to see if she will see tax breaks on either one. At 65 she will receive additional exemptions and deductions on her federal taxes. She may only have to pay taxes on the stock, again depending on her state.

Once she has this information, download both the federal and state tax forms normally 1040's but state may have a different name. Plug in her income using last years forms but update as if she was 65. This will give an estimate of after retirement. I would only use retirement information rather than current years income before retirement plus any pension/SS for last working year. In Missouri SS and some pension funds are not taxed under a certain amount, which was $34,000+ last time I looked.

For those that are working you REALLY need to start looking at what you might have as income starting at about 45. You can make adjustments to your lifestyle then but not the year before you retire.
sushipup1
11 years ago
Don't forget that Medicare Part B will be taken out of her social security every month. Part A (hospitalization) is no extra fee. And she'll also have to choose a Part D, drug plan. Part B should cost her $105 a month at her income. Part D is from $50 and up. And if she wants a supplemental or medigap plan to pay all or part of the bills that Medicare doesn't pay, that's an extra charge. Medigap plan isn't required, but if you want it, you must get it from the beginning or pass various physical (think pre-existing conditions) exams.
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duluthinbloomz4
11 years ago
Will there be a retirement health benefit? If fortunate, sometimes there is a "creditable" drug benefit which would eliminate researching Part D drug plans.
sherwoodva
11 years ago
Is her mortgage paid off? Does she have any debts? Your comment about "paying the bills" made me wonder. 65 may sound old to you, but she could live another 30 years. She needs to find a way to live on her SS and pension, if any, so that she can reserve her investments for emergencies. If she could work longer and save more, that would be ideal. Another option is a part time job.
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11 years ago
The first thing that she should do is to go over her expenses for the past 3-5 years. What are her annual expenses? Does her income after taxes (pension and Social Security) cover those expenses? If she needs more income, the dividends could be used to supplement what she gets from pension and Social Security. A 401K can be rolled over into an IRA and partial withdrawals can be taken as needed. She should not cash out anything until she determines what her expenses are.
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10 years ago
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My mom is retiring and needs help.

honeycombe8

Comments (7)

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sushipup1

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