Ask Terry Questions Chicken Money Question

Chicken Money Question

By Terry Savage on November 25, 2023 | Financial Planning / Retirement

Terry, I have a personal female friend that is 54 years old . She has a 30 year old son that needs full time care and therefore can not work . Her husband passed away because of CV19 about 2yrs ago. They had a little cash she has gone thru now. Thankfully she received 1 million dollars from life insurance policy . As of now she has all of it exposed to the stock market using Fisher. Of course they have her diversified in the market . My question , I’m telling her she should have something a little more secure long term because she can’t afford to lose the principal amount . She needs about $4500 monthly. Please provide some guidance.. as you know there a lot of sharks out there that do not have her personal interest being foremost .. We are simply trying to find the sweet spot of earning $4500 monthly without taking risk if that is possible. Thank you for any advice !

Terry Says

Without knowing much more about her, I would say that in this situation she should have no more than 30% of her money in the stock market — to help her keep up with inflation in the long run. Of course, money managers like the one you describe are paid by AUM– assets under management — so they have absolutely no incentive for her to take money out of that account and put it in “chicken money” like Treasury Bills.

So here’s the math. If T-bills continued to pay over 5% a year (and that may drop as inflation gets under control) she would earn $50,000 a year in this perfectly safe investment — if she put the entire $1 million in T-bills. She still couldn’t earn $4500 monthly. So she would inevitably be digging into her principal — even if to the tune of maybe $15,000 a year. And, of course, inflation would be eating into her spending power of that money.

So this is like asking a doctor to prescribe for someone who has a fever — but not knowing anything else about the patient. This is the time to meet with a fee-only FIDUCIARY financial planner who can look at the big picture. In about 11 years she will be eligible for Social Security, so maybe that can make up some of the gap. And a fee-only FIDUCIARY will look at her spending picture, and may be able to come up with some additional resources for the disabled son.

Please encourage her to look at this link from my website to find a Fee-Only Fiduciary. I get nothing out of this but the knowledge that she will be matched with an advisor she can trust.

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