Retirement Planning for Luddite Parents

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Scott 2
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Retirement Planning for Luddite Parents

Post by Scott 2 » Sun Nov 24, 2019 8:51 pm

My parents have agreed to look at retirement planning with me. Their current plan is detailed written notes on expenses in a notebook. I-bonds are a favored investment - no taxes! There's zero chance of creating online banking accounts, let alone integrating with a tool like personal capital. One of them refuses to even know how much money they have or what they spend.

So the question is - how to get them setup and self sufficient? I can probably introduce a basic spreadsheet (sums not vlookups), or an anonymous online tool with hand entry. The basic steps are obvious to me, but the technical limitations are a challenge.

Curious how others have approached this, before rolling my own solution.

I think they have had enough for awhile, but don't know it. My concern is they are in their early 60's, worrying about stuff like - $1.50 is too much to pay for a pair of socks or are we optimizing cost efficiency of our garbage bag use? I think uncertainty around their financial position creates fear, which leads to extremely constrained spending. There's a frugal gaming aspect to it as well, but I'd like to build confidence it's optional.

My ideal solution would give them the ability to project scenarios, both to assuage that uncertainty and to enable revalidation of financial status on a regular basis.

I have to wonder if they aren't good candidates for paying a fee based finical planner every year. They're probably too cheap, but I might even be willing to cover the cost.

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Re: Retirement Planning for Luddite Parents

Post by Frita » Sun Nov 24, 2019 9:13 pm

Have they asked for your assistance, or are they humoring you? If the latter, I will share that I have had no success.

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Mon Nov 25, 2019 1:36 am

I showed the parent handling finances my current numbers and approach. They're aware of my financial position and retirement interest, so this wasn't a big surprise. I then offered help. It was accepted, and I believe there is sincere interest. That's how I learned some of the things posted.

I didn't fully appreciate until today, that one parent carries full responsibility for planning. I thought a financial planner had been helping, but it turns out that was for a minor percentage of assets. From what I know, my parents don't talk to friends about money, so the one is going at it alone. There are definite bounds I cannot change. Money management isn't going online. Risk tolerance is extremely low, I suspect to the point of inflation eating some assets.

My initial intent is to ignore our different perspectives and help with simpler items:

1. Expenses
1.1 Easily tabulate spending
1.2 What might health insurance cost on medicare (ie med supp)
1.3 What happens to property taxes and when

2. Assets
2.1 What accounts are there - pre/post tax
2.2 Asset allocation
2.3 What are the social security options (confidence in social security is very low, probably unreasonably so)

3. Projections
3.1 Against current asset allocation
3.2 Varied retirement ages and social security levers
3.3 Risk and cost of long term care (big fear)
3.4 Contingency options like a reverse mortgage vs. rock bottom spending
3.5 If things are going well, maybe run a "what if" of a more aggressive asset allocation

I don't think my parents are on track to become financially destitute. Fear might lead them to live like it though. I'd like to prevent that. They worked hard and deserve to enjoy the results. On the off chance that I'm wrong, I'd like some warning to prepare.

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Re: Retirement Planning for Luddite Parents

Post by Frita » Mon Nov 25, 2019 11:11 am

It sounds like you have a plan and the desire to teach/help your parents. I suspect that one partner making all of the financial decisions and not really discussing money in any circles are fairly common. If you’re successful, they may send you referrals.

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Re: Retirement Planning for Luddite Parents

Post by black_son_of_gray » Mon Nov 25, 2019 1:43 pm

Just spitballin' some thoughts here. Feel free to take 'em or leave 'em. (I think it's super nice that you are helping them out.)

Elements of the situation for consideration:
1) The present - Apparently the one who handles finances keeps detailed written notes of expenses. That's a good start, and indicates that the discipline of keeping/maintaining a record is there. I'd proffer that a lot can be accomplished with just this habit if the record-keeping is well-organized. So any improvements to the system of record-keeping that improves clarity or comprehension with the same amount of routine effort will go a long way. This is low-hanging fruit - a few tweaks to an already established habit.

2) The future - A lot trickier, but maybe not too bad given the propensity for I-bonds and the like. Key here are the different tiers of predictability for the investments/expenses that pertain to them over the course of say, 5-10 years. Buying and holding bonds (i.e. not the same as the secondary market of buying and selling bonds) provides very predictable income. I would also put Social Security in the very predictable category. Capital gains off of stocks is considerably less predictable over a 5-10 year durations, etc. As an EREr, you already know all this stuff anyway. But once again, a simple organization of "predictability" categories for the near-ish term can do a lot to clarify how much "very predictable money" is reasonably expected (similarly, how much "likely" or "could happen, but don't rely on it" money exists, and the relatively ratios of these predictability groups). Personally, I think it's difficult to effectively plan for more than 10 years anyway. Better to just revisit and update near-term (5-10 year) plans frequently (once a year?). YMMV.

3) Low-tech implementation - While reading your description of the situation, the practice of double-entry accounting popped into my head. Granted, it is almost assuredly overkill, but might be a nice foundation to start with and then pare down to your parents' needs. What's nice is that it is easy to get cheap, pre-formatted ledger books. So there is a simple low-tech solution that seems to match with the current practice of expense note-taking. And the ledger format imposes a useful organization that is pretty easy to decipher quickly (which is particularly helpful if, god-forbid, something happens to the one in charge of the finances and the other (or a family member) needs to figure things out without help). It doesn't require anything more than basic math and requires no computers. No computers is particularly useful in worse-case scenarios of all sorts.

Anyway, maybe some of this is worth considering. Good luck!

George the original one
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Re: Retirement Planning for Luddite Parents

Post by George the original one » Mon Nov 25, 2019 2:08 pm

Scott 2 wrote:
Mon Nov 25, 2019 1:36 am
I didn't fully appreciate until today, that one parent carries full responsibility for planning.
It's not an unusual arrangement. And of course I'm also sitting here thinking that "in their sixties" is not that old.

First order of business is to make sure the other one has a list of the assets/accounts in case the planner is incapacitated. At this late stage, they're going to be most comfortable using paper records/journals. I'd probably set up a Google sheets document to run in parallel so they could use any browser, even a smartphone, to access it when they're ready to do so.

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Mon Nov 25, 2019 11:31 pm

I appreciate the thoughts. I'm going to slow down and focus on understanding what is on paper first. I'll try to replicate it digitally, to demonstrate the conversation has been heard. Then maybe we can find some opportunity for small incremental improvements. It's probably the most realistic approach.

My nature is to leap ahead towards optimal, but I'll shut the conversation down if I rush. That's a really good point and one I was missing.

I don't know if I'm up to double ledger accounting. I never learned about it, but I'll file the idea away.

The soft skills will make this harder than I anticipated. Having one partner do the planning is common, even if I'd never live that way. I need to avoid letting my personal views color the conversation. I have so many reasons joint financial planning and literacy are important, but my rules don't matter in their relationship.

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Re: Retirement Planning for Luddite Parents

Post by bigato » Tue Nov 26, 2019 2:50 am

The double ledger system is very simple. Before smartphones, I used something similar with a paper I carried with me. Basically, I'd start the month by listing the balance in every one of my accounts, the money in my wallet being considered one account. The trick here is that expenses categories were also considered "accounts". In this system, every transaction is a transfer to one account to the other. So if I started the month with say, 1,000.00 in my wallet account and then I paid 1.00 for a bus ticket, I'd write down an entry like this:

1.00 bus ticket (999 wallet --> 1.00 transportation)

after a sandwich, there would be an entry like this:

2.00 sandwich (997 wallet --> 3.00 food)

the next bus ticket would look like this:
1.00 bus ticket (996 wallet --> 2.00 transportation)

So you see, every entry involves looking back in the log to find the last entry involving that account so that you update the balance. Income would be registered like this:

2.000.00 salary (income --> 2,123.00 checkings account)

(the checkings account had a previous balance of 123.00 before receiving the income)

Or if I wanted, I could have a virtual source-of-income account that would get increasingly negative as they pay me, so that its balance would be always reflecting how much I received in income during the period, something like this:

2.000 salary (-6.000 income --> 2.123 checkings account)

where 6.000 is the negative of the sum of every income I received since I did the last conciliation - you could be tracking only per month, or maybe per year, whatever you prefer.

An withdrawal from the checkings account would look something like this:

100.00 atm withdrawal (2.023.00 checkings account --> 1096 wallet)

A ledger is not much different from this. The most interesting part is that it becomes much harder to loose money or to forget tracking something, because the sum of the accounts must remain the same. Proper double entry accounting states that the sum must always be zero or something like that. In my slightly different system, I'd zero out all the categories by the end of each month, summarize the expenses categories somewhere, and then start the new month with the expenses accounts zeroed and the other accounts positive (wallet, checkings account, savings account, bonds, etc).

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Tue Nov 26, 2019 9:52 am

That system makes sense. It'll be interesting to see how close the paper approach is already. The planner did books for a local Walgreens 40 years ago.

Two more wrinkles I realize must be accounted for:

1. Most transactions are not electronic. They visit the bank every week or two for cash, then spend that.
2. How can the system stay robust in the face of a mental decline, or alert to it for intervention?

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Re: Retirement Planning for Luddite Parents

Post by jacob » Tue Nov 26, 2019 10:21 am

Actually, from what you're saying and as long as the numbers hold, I think your parents have a great/very robust system---there's little that can go wrong compared to an integrated electronic system using "fancier" investments like ETFs. What you're proposing will probably have to be changed within a few years as some online tool gets deprecated and replaced with a new design or needs a "simple" update to keep working; ditto various funds which might get replaced; not offered any longer; or have their taxation changed.

Pen and pencil really is forever compared to online records which might get lost during a merger as one broker gets bought by another, passwords get lost, computers crash, their familiar advisor changes jobs or is replaced by a twenty-something noob in an oversized suit.

In particular, their current system has the advantage that they don't have to learn anything new and aren't subject to surprises. Worst thing that can happen here is that they bank/branch gets bought out and closed. In comparison, relying on online banking and tools or having to do forensics when something is "lost" can be quite the shitshow.

Here's a good defense of I-bonds and TIPS. It's actually not that bad of an idea // one could do far worse. ... 1118014308

I think your biggest task is to get both parents on board in case the captain is lost. That might be the reason why you're brought on board.

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Tue Nov 26, 2019 11:32 am

There are definitely no surprises. I'll keep the I-bond/TIPS strategy in mind as I learn how they are working today.

It's all so far from my automated, real-time world. I haven't balanced a checkbook in 20 years.

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Thu Nov 28, 2019 7:42 pm

We spoke more today, committing to a deeper review of expenses and assets over Christmas.

There is not detailed expense tracking. Planning today is based on - paychecks provide X, we take out Y, and then we can spend Z. So we should assume spending of Z for perpetuity. That rough estimate of Z is at least a third higher than what I'd expect, given observed lifestyle. I suspect some sort of overly conservative mistake in estimation. Everything is modest - owned house and cars, no vacations, no debt, no cable, cheap cell phones, estate sale clothes, etc. The biggest splurge is fast casual dining once or twice a week.

I did not appreciate what a cornerstone social security is for the retiree who works until age 65. In their case, the program provides an expected income roughly matching expected perpetual expenses. This is before any other retirement accounts are brought into consideration. They could live well on the expected social security alone.

I showed my budget, tracking and asset allocation breakdown. Then I demonstrated how projections can work on the computer. Within the context of those projections, we talked about the impact an inheritance would have on my financial life. In short, not much. The resulting discussion was interesting. The planner's parent had a bumper sticker - "I'm spending my children's inheritance." The concept resonates strongly with the planner. I pointed out the discrepancy relative to current strategy, which may have caused some thought.

The planner's current framework on assets is a mental catalog of retirement accounts, each tied to a previous job. For the most part, I don't think accounts have been rolled over or consolidated. Investment fees seem to have gone a long time without being evaluated, at best. Deliberate global asset allocation is missing. Tax advantaged decisions are present in some cases, but not worked into a fully orchestrated strategy.

Expenses related to healthcare and long term care are by far the biggest concern. I can understand and appreciate that fear. The current solution of "hold on to as much money as physically possible" is pretty safe. I acknowledged that and emphasized the value of shared understanding, over forcing change. Knowing the concern over physical and mental decline, I'll direct our efforts towards creating protections, opposed to maximizing spending.

While the strategy can be improved, I really couldn't have asked for a better conversation. The planner likes talking about their money. They can objectively consider hard topics, like healthspan / lifespan. There was no shutting down, arguing or stone walling. For a child talking to their parent about money, it went great.

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Re: Retirement Planning for Luddite Parents

Post by Jin+Guice » Fri Nov 29, 2019 1:19 pm

Thanks for sharing Scott2. I'm having a similar struggle with my mother. Her situation is that she has no savings but recently inherited what I consider close to enough for retirement at a 3% WR, she plans on working until age 70 to raise her SS payment to what I consider to be more than twice the amount a single person needs to live, and she is fucking terrified of everything. My biggest struggle is not shaking her and yelling "you have a fucking engineering degree so why, when it comes to financial planning, are you incapable of addition?!?" Hearing about your different but similar struggles in very cathartic.

My $.02, when it comes to your situation, is that your parents seem to be in a good financial position as long as SS holds out. They are probably fine even if it doesn't. It sounds like the main barrier, in your mind, is their aversion to technology, but as everyone else has said, just let them pen and paper it. Maybe it'll help keep their minds sharp. I think the main challenges are uncovering what your parents fears are and either discussing why they might be inaccurate or planning in a way that accommodates them. This is fucking hard to do.

You haven't given exact numbers, but it sounds like your maybe pushing for an aggressive investment policy, aimed at wealth growth, but that your parents would be fine with a defensive strategy aimed and wealth preservation?

Scott 2
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Re: Retirement Planning for Luddite Parents

Post by Scott 2 » Fri Nov 29, 2019 10:26 pm

I think this is a common problem. Some of the other posters here, Sclass especially, have motivated me to get on top of it. Long term care is scary. We've had family in government funded elder care facilities - both Medicare and the VA. Visiting was incredibly uncomfortable. I can only imagine how bad living there must be - trapped where society hides the age related mental and physical decline.

At this point, I'm not looking to change any investment policy. My initial goal is capturing an accurate financial picture, so informed lifestyle decisions can be made. While my bias is in favor of technology. paper might be the only option. If that turns out to be the case, we'll have to do something about the math errors. A couple have arisen already. They won't improve with time.

The planner is engaged and reached out again today over email, with a reason for the high expense estimate. Their current home is the retirement home. A substantial remodel was completed last year (~20% of housing value), after 20 years doing the bare minimum. All remodeling incidentals are included in the expenses estimate. Since they won't remodel every year, it's simply not accurate.

I confirmed with a few compliments, then shot back my big concerns - resilience of the financial plan and under spending. Both were framed in the context of protection. In short - how much in home care can you afford? I think that captured more attention.

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