Asset Allocation Advice for Older Retirees

Q: My father recently passed away, and I’ve been helping my mom figure out her finances. Mom paid all of the bills over the years, but Dad took care of the investments with the help of a long-time stockbroker. Her home is paid for, and she has about $60,000 in income from pensions and Social Security, so she’s fine financially, but I’m a little concerned about her investments. She has about $500,000 in her IRA and brokerage account, but she is allocated almost 70% in stocks. Is that too much in stocks for someone in her 80s?

A: I’m not sure if it’s too much to have in stocks or not. As strange as it may sound, one’s age isn’t always the deciding factor in how much money should be allocated toward long-term investments.

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Here’s the thing: Your mother has enough income from her pension and Social Security to cover her monthly expenses, so I’d bet that she’s not spending any money from her investments. She must take required minimum distributions from her IRA, but she’s probably just paying the taxes on the distributions and reinvesting the rest.

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The percentage of her portfolio that could be allocated to more aggressive investments, such as stocks, is based upon two main factors. The first one is your mother’s risk tolerance. That is, how comfortable is your mother with the ups and downs that come with riskier investments? The other is her time horizon, which is how long she has before she needs the money from her investments.

Let’s start with your mom’s risk tolerance. Given that your father handled all of the investments, your mother likely has very little experience dealing with those matters. Your father may have brought her into conversation, but odds are it wasn’t very detailed. She had faith in him, which likely gave her all the assurance she needed.

Now that your father is gone, the question you should be asking is whether she trusts the family broker. My guess is that your parents worked with a commission-based broker, which isn’t my favorite structure for a financial adviser, but regardless, the relationship helped your parents amass $500,000 in assets.

If your mother has the utmost in confidence in the family’s stockbroker, she may be best served by maintaining the relationship with him and following his advice. However, if for any reason, your mom doesn’t have complete trust in the stockbroker, than perhaps she’d be better served by finding a new financial adviser. But finding a new one that she trusts won’t be easy. In fact, odds are she’ll be leaning heavily upon you to not only find a new adviser, but also to pick the right investments for her, as well.

Depending upon your mother’s confidence in you, this may be a good thing or it may be a bad thing. I’ve seen countless situations where a child steps in to help a parent with their investments, only to be questioned on a regular basis about the accounts. If you helped put together a portfolio for your mom, and the account declined the first couple of months, would she be calling you every few days asking for assurance or clarification?

In short, if it’s not broke, don’t fix it. For many widows, sticking with the family adviser provides the most amount of peace, even if the portfolio is in fact on the aggressive side.

In regards to your mother’s time horizon, one could certainly make an argument that the funds shouldn’t be invested for the long-term because, frankly speaking, your mother doesn’t have a long life ahead of her. She may have another 10 plus years, but she definitely doesn’t have the life expectancy of someone in their 50s.

Even though your mom may not have a long life expectancy, her portfolio certainly may. If she has no plans on spending these dollars during her lifetime, then the funds will be left to her heirs when she passes away. Her heirs, most likely her children, still have a long-term time horizon when it comes to their investments.

So, her investment allocation of 70% in stocks may be entirely appropriate for her. If she is comfortable with the broker and has no plans to spend the money, then tell her she’s doing great and to simply follow the broker’s advice. Disrupting that relationship and making changes to the portfolio may only complicate matters for both of you.