Elderly Father’s Retirement Money Hit By Stock Market Losses

Terry,
My 81-year-old father is a dementia patient who needs 24-hour care. I have power of attorney, but my sister and I both handle his finances now. His live-in nursing assistant alone costs about $7000 per month.
My dad started 2015 with about $1 million in his IRA. With the volatility in the stock market this summer, that account has lost about $35,000 per month since June! Dad was a homeless child, came to the United States from China with just 20 dollars to his name. He would be horrified to know his life savings was bleeding like this. If Wall Street continues like this, we will go through his IRA funds fast.
My accountant thinks I should consider putting half in “cash and fixed.” Our investment rep at UBS thinks I am overreacting and panicking for no reason. He says my dad’s stocks are in solid companies that have performed well over decades. I understand you stay in the market for the long run and will eventually come out ahead. At 81-years-old, I am afraid he may not have time to make his losses back. With dementia, doctors say there is no way to predict how much longer he will live. Most live about 8 years from diagnosis. Some live 20 years.
I get sick when I check the markets every hour for my dad. I just want to make sure he has enough money to live on for what time he has left. What is your opinion?

Thanks.

Terry Says:  Well, that’s the problem.  You check the markets every hour.  And he has a short time horizon!  By definition, all this money does not belong in the stock market!  However, it is entirely possible that some of this money may be left for you and your sister, if it isn’t all used on his care.  And you could benefit from long term growth that stocks offer — over the long run, at least 20 years.

So, I would suggest that you take half of the money and start liquidating the stocks.  Sell a fixed roughly similar dollar amount only on days the market looks like it will close higher, and do that no more than twice a week.  Perhaps you could sell about $50,000 — twice a week — for a period of five weeks.  Put the money in a money market fund, inside the IRA.  That way you can write a check every month without crying.

Listen to the broker and have a discussion about whether you want to sell half of every stock position — or liquidate some stocks entirely.  There are no tax consequences if the sales are made inside an IRA.   This is called “hedging your bets.”  No one knows if the market will be higher or lower a month, a year, or 5 years from now.  But this way, you’ll benefit from any future gains in the stock market — AND you’ll have cash on hand to pay the bills.  Then vow not to worry about it except on a quarterly basis.