Investing

Home sale profits investment when in retirement home

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  • Mar 13th, 2019 7:57 pm
[OP]
Member
Jan 21, 2008
380 posts
239 upvotes

Home sale profits investment when in retirement home

HI, I am looking for some advice on what type of investment product would be best for my Grandmother who is selling their house to move into a retirement home. The cost of the retirement home is around $4K a month and the profits from the home sale should be around 400k. I am obviously looking for a low / no risk portfolio but I am wondering if there are products that are setup to draw a monthly amount from to fund the retirement home fees or other suggestions. She also received OAS and CPP so we would likely only need to draw around $2-3K per month from the investment. Any help would be appropriated.
12 replies
Deal Fanatic
User avatar
Sep 1, 2013
5526 posts
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If your grandmother needs a 6% to 9% return on her 400K capital, with low risk, I think buying an annuity from an insurance company is the best solution.
Deal Addict
Jan 28, 2007
2193 posts
1532 upvotes
SW Ontario
Stay away from annuities, there are much better options.

We faced the exact same situation a few years back with my aging mother-in-law, after selling her estate sale. She needed assisted living which was going to cost $4K/month range. So after considerable research and time, we set up a equity trading account and bought 4~5 different dividend paying ETF's that preserved the initial capital, which was around $450K. The dividends paid out monthly covered almost entirely her living expenses, until her passing.

It was her desire to ensure she left as much of an inheritance to her children, which this accomplished.
I'd rather be outdoors camping, kayaking, and mountain biking ...
Deal Addict
Jan 23, 2016
1266 posts
388 upvotes
Kitchener, ON
Jojo_Madman wrote: Stay away from annuities, there are much better options.

We faced the exact same situation a few years back with my aging mother-in-law, after selling her estate sale. She needed assisted living which was going to cost $4K/month range. So after considerable research and time, we set up a equity trading account and bought 4~5 different dividend paying ETF's that preserved the initial capital, which was around $450K. The dividends paid out monthly covered almost entirely her living expenses, until her passing.

It was her desire to ensure she left as much of an inheritance to her children, which this accomplished.
So what did you buy that was reliably paying 10%?
Deal Addict
Jan 28, 2007
2193 posts
1532 upvotes
SW Ontario
Sparky9087 wrote: So what did you buy that was reliably paying 10%?
I may have misspoken, as my wife thinks it was $3500/month was her costs, so the return about was less than 10%.

This past January marked 2 years since her passing, and IIRC the dividends covered her assisted living for about 18 months or so.

It would take some digging, as it was my BIL and myself that did the research but he had POA and managed her accounts directly, but IIRC some were EIT.UN and CIQ.UN and one of the Middlefield ETFs.

It may not be ideal for everyone, but at least your keeping the underlying capital instead of giving it away ...
I'd rather be outdoors camping, kayaking, and mountain biking ...
Deal Fanatic
Feb 15, 2006
8566 posts
3042 upvotes
Toronto
There is no investment that would consistently pay 10%, or even 6-9%, long term, after inflation.

A low risk portfolio these days can aim at 4-5% as a more reasonable and can be achieved with a combination of dividend paying blue chip equity (or ETF) and fixed-income instruments. There'll be ups and downs, and even possibly some year(s) of negative returns. Then there are those who want no possibility of a negative return year, would be looking at all fixed-income, which might return 1-2% after inflation.

So think about the risk tolerance, and how long this needs to last.
Jr. Member
Aug 29, 2018
103 posts
152 upvotes
Toronto
wronguy wrote: HI, I am looking for some advice on what type of investment product would be best for my Grandmother who is selling their house to move into a retirement home. The cost of the retirement home is around $4K a month and the profits from the home sale should be around 400k. I am obviously looking for a low / no risk portfolio but I am wondering if there are products that are setup to draw a monthly amount from to fund the retirement home fees or other suggestions. She also received OAS and CPP so we would likely only need to draw around $2-3K per month from the investment. Any help would be appropriated.
OP,

The most important thing, assuming your grandmother has no other assets (RRIFs, LIFs, TFSAs, etc) is modest capital draw down with limited risk and inflation protection. Maximizing returns should NOT be a priority, but rather generating a sustainable drawdown and preserving capital as much as possible.

With almost any ETF or market based investment, you run the risk of losing capital faster than sustainable. Your grandmother can’t risk (based on my assumption that apart from CPP and OAS this is all she has) losing almost anything at this point - but of course this will depend on a multitude of factors.

How old is your grandmother?
Any other assets?
How is her health?
Does she have longevity in her family tree?

If indeed your grandmother only has OAS and CPP (and depending on what amount) she may qualify for GIS as well. Has any one looked into this for her? What is her income on her tax return?

The good news is that because the proceeds of her house are tax free, the adjusted cost base will be $400k as well. This means that depending on her tax situation and other income (CPP and OAS) she end up with a very limited tax hit - thus hypothetically making that $400k last much longer.

You will likely need to look at GICs and annuities, mixed in with some bonds (domestic and foreign - by ETF, index or mutuals) and potentially dividend/monthly income funds/ETFs to sustain above inflation numbers - but of course this will depend on her specific situation (age, health, etc).

If she’s getting up there in age and you expect these withdrawals to last only a couple years - as much as I don’t usually agree with them, perhaps segregated funds are also an option for her as they come with certain guarantees and death benefits - while bypassing the estate (when the time comes) by way of direct beneficiaries.

If you can answer the above questions, it may be easier to provide some guidance.
Deal Addict
Oct 7, 2011
1068 posts
364 upvotes
Toronto
CheapScotch wrote: If your grandmother needs a 6% to 9% return on her 400K capital, with low risk, I think buying an annuity from an insurance company is the best solution.
Bad advice. There is nothing low risk and returns 6-9%.

If the OP wants no risk of losing capital, then annuity and/or GIC/fixed-income is the way to go, but it gets low return, say 2% and after inflation it'll be very little. To have more return you'll need to invest in non fixed-income, which has risks but can provide higher return in the long term, and don't be locked into an annuity.

Some good suggestions by various posters. The OP needs to figure out how long term, and how much risk is acceptable. No risk means almost no return. Low risk for low return. Higher risk for higher return. Most retired people go for low risk low return, but some want no risk and therefore near 0 return.
[OP]
Member
Jan 21, 2008
380 posts
239 upvotes
Thanks everyone for their responses, it is much appropriated that you took the time out of your day to help!

She is currently 90 and receives both CPP and OAS, I have to check on GIS (thanks!)
After some research I am thinking the best way may be to buy a couple of different GIC's through Meridian with different time horizons (5 year, 18 month, 1 Year) as they are currently offering 3.25-3.45% and redeem / renew them as necessary and have a HISA to keep her yearly daily / monthly expenses which would only draw around 2K from per month. Given these rates and her expenses we would only be drawing aprox $10K from the principal on a yearly basis.

Please let me know if this makes sense and if there is anything I should watch out for, my only major concern with this route is what happens if she dies before the GIC's reach maturity but I guess it probably depends on the bank with penalties ect.
Deal Addict
Jan 28, 2007
2193 posts
1532 upvotes
SW Ontario
Be very cautious of anyone trying to peddle you an annuity, and make sure you understand what you are really paying for, as frankly, most people could do better than these "fear mongering" products.

Some questions to ask:
- If the event of the death of your mother, do the payments stop and the principal paid lost, or does it have an option for leaving something to a survivor or heir?
- What are the sales commissions being paid out for selling you this product? ... In Canada "CRM2" obligates the dealer/provider to disclose this to you as the customer. If they don't walk away.
- What are all the fees associated with the annuity, for things such as administration, management, or other fees and riders?
- Does the annuity adjust for inflation? ... otherwise, you'll be getting the same income payment in 20 years as you get today, which will go even less as far expense wise.

As they say, the devil is in the details, and let's be honest, financial institutions aren't in it for your benefit. If you need an advisor and want to go with one to manage the funds, go with someone who is compensated by "fees for service" and not someone who is compensated by the products "sales commissions" (basically a spiff).
I'd rather be outdoors camping, kayaking, and mountain biking ...
Deal Fanatic
Feb 15, 2006
8566 posts
3042 upvotes
Toronto
At 90, she may not be living in retirement home by herself for long. Or do you mean long term care (nursing) home where they provide round the clock care, with food and nurse. Even if she's capable to cook and move around herself in a retirement home, it's likely she still needs to move into a nursing home soon. We have seen several friends' parent(s) do that.

At 90, you're not looking to be withdrawing for 30 years, well unless she is very healthy and breaks records, to live another 30 years.

If she dies before the GIC matures, there are always provisions in GICs for death. The idea of staggered GICs and HISA is fine, because it preserves capital, and you're not looking for high returns.

$10k withdraw per year, will make a small dent in the $400k. So you could consider withdrawing more, to provide good quality of life, including taking her to some trips while she's able. I hear some friends/relatives in retirement talking about leaving certain amounts to their kids, and I keep telling them they don't need to save and be frugal any more, spend some on themselves and enjoy life, travel while they still can.
Deal Fanatic
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Sep 1, 2013
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Cavegirl wrote: Bad advice. There is nothing low risk and returns 6-9%.

If the OP wants no risk of losing capital, then annuity and/or GIC/fixed-income is the way to go, but it gets low return, say 2% and after inflation it'll be very little. To have more return you'll need to invest in non fixed-income, which has risks but can provide higher return in the long term, and don't be locked into an annuity.
You get quite a bit more than 2% from an annuity.

https://lifeannuities.com/articles/2019 ... 90104.html

Note that a single female age 60 can get 5.3%, significantly more if they are older, and with far less risk than a non-fixed income product.

An annuity may be bad advice ........... if you are considering what is best for her heirs Smiling Face With Open Mouth
Deal Addict
Oct 23, 2017
1365 posts
989 upvotes
GTA West
wronguy wrote: Thanks everyone for their responses, it is much appropriated that you took the time out of your day to help!

She is currently 90 and receives both CPP and OAS, I have to check on GIS (thanks!)
After some research I am thinking the best way may be to buy a couple of different GIC's through Meridian with different time horizons (5 year, 18 month, 1 Year) as they are currently offering 3.25-3.45% and redeem / renew them as necessary and have a HISA to keep her yearly daily / monthly expenses which would only draw around 2K from per month. Given these rates and her expenses we would only be drawing aprox $10K from the principal on a yearly basis.

Please let me know if this makes sense and if there is anything I should watch out for, my only major concern with this route is what happens if she dies before the GIC's reach maturity but I guess it probably depends on the bank with penalties ect.
I like this approach.

You are playing mortality roulette here. If your GIC's return a rate equal to inflation, and your monthly costs inflate accordingly, you have 133 months or 11 years where you can draw down $3k per month, before the assets are depleted.

Statscan publishes mortality tables. I am not sure I understand them - as best I can figure, you have a 30% probability of dying within a year when you are 90. String a few of these probabilities together, and you can see the odds of grandma attaining 100 are not good. After all, there are only about 5,000 centenarians in Canada. So unless you have many centenarians in your family tree, you should be safe with a 11 year depletion period.

If you went for stocks with a high dividend yield like bank stocks at 5%, instead of GIC's, I think the yield would still be too low for you considering the capital risk.

Remember that traditional funerals cost about $12k these days plus the cost of a plot and marker. I think you have a pretty good chance of having enough left for this as well.

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