Investing for Aging Parents: Practical Tips and Pitfalls to Avoid

My aging parents were middle class. We didn’t own a house until I was in 3rd grade. My mother retired at 59 with a small pension from her company. My father really never retired; he was always selling something but didn’t make much money. Both took Social Security early at 62 (again, a time when people thought social security was going to run out of money). They had about $300,000 in savings when I finally started to help them.

Being the oldest child, and a finance person, I was reluctant to ask them about their investments. I felt that was being “nosy”. I assumed they were knowledgeable about finances and investing. It wasn’t until my parents got in a car accident with my father sustaining a significant head injury that I realized they needed help.

I started to ask questions about their finances. They had been using a “good guy” financial advisor in the Illinois area and decided to move to a financial advisor (another “good guy”) in Arizona where they live. They completed a risk profile questionnaire that put them in a “style-box” as an investor and were provided with a proposal of how their funds would be invested. Because I had been asking questions, they sent me the proposal to review. Now remember, they are in their 80s and my father is failing due to the car accident.

I was AMAZED at what I saw! Due to the questionnaire, they were put in an aggressive stock portfolio. At 80 years old, with poor health, they needed PRINCIPAL protection and income for end-of-life needs. They did not have time to recoup losses from an aggressive portfolio that included technology stocks and significant investments in volatile ETFs. That is when I decided to start managing their portfolio.

While I had been in finance, I was a bit nervous about managing a portfolio on my own, but very quickly I realized was not difficult. Here are the steps to take:

1. Ask your parents questions about their finances before they have a significant health event. They will appreciate you showing an interest, and you will help them preserve their retirement money for longer.
2. Set up a brokerage account at Schwab. Take your parents with you to a local branch and set up an account for them. Hopefully they have a Trust (more on trusts in another Blog) or Will and you are an executor. But, if they give you permission to have trading authority on their account, you don’t need to have either one.
3. Make sure all your siblings are set up as beneficiaries, per your parent’s wishes. If all the accounts are set up with beneficiaries, you will avoid probate problems in the future.
4. Set up Transfer accounts so funds can move between a checking account and the brokerage account easily.
5. Start trading through the platform using Trade/Bonds or CDs. Since you are trying to preserve principal for your parents look at buying individual CDs or Treasuries and keep maturities short. (See article on Investing in DTC CDs) Since they are in their 80s, I would only go out 2-3 years at a time. You can buy amounts as small as $1,000. For example, my parents had $300,000 to invest so divide that by 24 = $12,500 is the amount that I would invest every month for 24 months.

Remember to communicate with your parents often about their portfolio and have paper statements sent to their home residence. Ask them about their upcoming needs and keep some funds available for urgent needs. Schwab also has a great money market fund that is earning close to 5% with funds available in 7-10 days as of this writing.

Schwab professionals are very helpful. There are a ton of resources available on the platform to learn more about investing. One of the things I learned is that financial advisors pay very little attention to accounts with less than $500,000. Those accounts tend to be invested poorly and result in the greatest losses over time. It is much easier than you think to help your aging parents with their finances.

Next Blog – how to choose the best bond/CD investments!