‘The amount of cash is too conservative given the guaranteed pensions’: I have guaranteed pensions in retirement. How should I invest to maximize growth while affording the retirement community?

Hey Money Minder,

My parents are both in their mid 60s, chilling out in retirement with their state pensions. If one of them dies, the other still gets some cash. They’re all covered for health insurance and have a max of $5,000 per year for hospital visits. The plan is to move to a fancy all-inclusive retirement place for about $10,000 a month. They’ll sell the house, and on top of that, someone might need extra medical care costing around $5,000/month in the same facility.

Here’s the money stuff:

Pension 1 – $5,000.00
Social Security 1 – $1,900.00
Pension 2 – $3,350.00
Social Security 2 – $1,850.00
Total: $12,100.00

Expenses:

Around $7,100 and not planning to skimp. Once they’re in the retirement spot, a bunch of these costs will disappear.

Things they own:

Cash – $515,000 in HYSAs, making 4.2% – 5% interest (~$2,000/month)
Traditional IRAs – $218,000, some VTI and some cash (~5% interest)
I-Bonds – $32,000
House – $500,000
Vehicles – $70,000

Debt:

None

Question:

I heard that in retirement, it’s best to play it safe with investments. But I’m thinking maybe there’s too much cash lying around, considering the fixed monthly pension and insurance caps. How should they shuffle the money around to grow it while still covering the retirement home costs till the end? Hit me up with some advice.

Farewell,
Savvy Saver

Response from THE MONEY MINDER:

Hello There,

Hello,

It seems like you are in a good financial position with your pensions, Social Security income, and substantial cash reserves. Given the stable income streams you have, you might want to consider a slightly more aggressive investment strategy to maximize the growth of your wealth over time.

One approach you could take is to maintain a comfortable cash reserve equivalent to 6-12 months of living expenses in a high-yield savings account, as you currently have. This will ensure that you have liquid funds readily available for any emergencies or unexpected expenses.

For the rest of your assets, you could consider diversifying your investment portfolio by moving some of the cash reserves into a balanced mix of stocks and bonds. You might want to work with a financial advisor to develop an investment plan tailored to your specific needs and risk tolerance.

Given the current interest rate environment, traditional IRAs might not be earning as much as they could in a more diversified portfolio. You could explore investment options such as low-cost index funds or exchange-traded funds (ETFs) to potentially earn higher returns over the long term.

Overall, with your steady income streams and lack of debt, you have a solid foundation for your retirement. By strategically allocating your assets and investing wisely, you can aim to grow your wealth while ensuring you have the means to afford your retirement community and any additional care you may need in the future.

Best of luck with your financial planning journey!

Farewell from THE MONEY MINDER