My father-in-law grew up during the Great Depression, flew Corsairs (similar to the one pictured below) off of and onto Navy ships in World War II, and just celebrated his 90th birthday. He was irritated when he found that the considerable amount of money he had in CDs was coming to term and the rate to reinvest was ridiculously low—exemplified by the rate of return of less than 1% that he received from a one-year CD. He realized that he was investing too conservatively. But what do you do when you need retirement income and you don’t have the years to ride out times of poor interest rates?
He decided to take advantage of the time value of money, using someone else’s time—his son’s. At 50, his son has years to invest in more aggressive vehicles. Dad made a deal with my husband and me. Here’s the plan that he laid out: “I give you a chunk of money. You invest it however you want. You cut me a check every month at a decent interest rate (far above the interest rate I was getting on the CDs, but not too high). When I die, you disperse the funds to the family as I wish. Then, take your share and do with it as you please. This way, I have my retirement income coming in at a decent rate, you have the opportunity to make more on it if you can, and, at the end, you still get the chunk of money that I want you to have.”
An example of good thinking from a smart member of the Greatest Generation.