Often I have clients that ask for financial advice. Should I buy a rental?  Should I sell my rental since prices are so high?  What type of property should I buy?  Single-family versus multi-family versus land or something else? Where should I buy? Should I take the cash out and pay the capital gains taxes or should I 1031 exchange to defer the taxes until later?  Where should I invest my money?  It is easy for me to answer some of these questions but some are more difficult and outside of my area of expertise.  One of my friends send me Whitney Tilson’s advice so I thought I would pass it along as it might be helpful.  The only other thing I would advise is to start saving for retirement as soon as you can.  Too many people have zero savings and are relying on social security.  Unfortunately for a married couple, if one spouse dies their social security payments stopped, potentially causing a financial crisis for the surviving spouse.

Whitney Tilson – I get many e-mails from retired readers who ask how they should invest their savings. Unfortunately, because Empire Financial Research is a publisher, not an investment advisor, I can’t give specific advice to any individual… so let me instead address a hypothetical couple, based on what I’ve heard from many different readers.

Here are their characteristics:

Age: 72
Both are in good health, vaccinated, nonsmokers
Two adult children plus grandchildren
$75,000 of annual income from Social Security and a pension
Expenses of $50,000 annually
No expected large payments such as the purchase of a vacation home
No debt
Savings of $500,000, currently in cash
Risk-averse
Here is the advice I would give this couple regarding how to invest their nest egg…

My biggest message would be Congratulations! You appear to have done everything right and, as a result, are in a great financial position that will almost certainly allow you to live comfortably and enjoy the rest of your life.  Before I go any further, a key factor to address is life expectancy. I Googled the average life expectancy for a 72-year-old American and the result was 13 years for a man and 15 for a woman. However, I think this hypothetical couple needs to plan for nearly double this, given that they are in good health, have access to high-quality health care, have a stable financial and marital situation, etc.

My grandparents could be this hypothetical couple. My grandfather was a Seattle fireman and then, after he was injured on the job, worked for the Water Department. In the days before the middle class in this country was gutted, his salary alone was sufficient to provide for his family and send my mom and her three siblings through the University of Washington in the 1960s without debt (thanks in part to all of them working through high school and college) and onto successful careers and lives. 

When he retired, he had two pensions, so he and my grandmother lived comfortably. The only sad part of this story is that he died too young at age 82, no doubt in part due to developing a big belly in his old age and a lifetime of smoking, which he stopped only after a heart attack that required triple-bypass surgery at age 75 (my grandmother remarried and lived to age 99).

As for how my hypothetical couple should invest their $500,000 nest egg because they have no debt and expect that their income will exceed their expenses every year going forward, they don’t need to do anything with it. They can leave it all in cash and cash equivalents (such as super-safe short-term bond funds) and live happily ever after, with no risk or stress. If a calamity strikes – for example, one of them has a medical issue that requires expensive long-term care, $500,000 is enough to cover all but the worst scenarios.

On the other hand, because their financial situation is so healthy and they have (I estimate) at least a 20-year investment horizon, if they want to grow their nest egg, they are in a good position to invest significantly more in stocks than average 72-year-olds.

So what would I advise? Roughly splitting the difference…