Today is reportedly Brooke Astor's 105th birthday. You know who she is, right? Wikipedia introduces her as "an American socialite and philanthropist who was the chairman of the Vincent Astor Foundation, which had been established by her third husband. She also is a novelist and has written two volumes of memoirs."
Mrs. Astor been in the news in the past year or two because of allegations that she has been neglected and abused; last I read, a judge deemed these allegations unsubstantiated. Her son and grandson, among others, are embroiled in arguments over how well she has been cared for and who should be her guardian. (She is suffering from Alzheimer's disease and other ailments.)
I read an interesting article about her financial condition in the New York Times this week. Permit me to share some of the things I learned, and to offer some thoughts on them.
- For starters, Mrs. Astor is estimated to be worth roughly $131 million, with her assets spread out among real estate, stocks, jewelry, and more. So far, so good. Such diversification can be smart, preventing her from being wiped out by a major stock market meltdown or real estate implosion.
- Her Citibank checking account's value: "$816." Wow. That seems not so good to me. Most of us probably would want more than that, to be there for expenses we need to write checks for. (Fortunately, she also had nearly $60,000 in another checking account.) You can lose out on some benefits at banks if you don't maintain a certain minimum balance -- benefits such as higher interest rates, free checking services, or the waiving of various fees. On the other hand, at 105, Mrs. Astor probably doesn't write too many checks herself anymore, so a low balance might not be that dangerous. And in general, checking accounts are not the best places to keep big portions of your money. They tend to pay paltry interest rates, and more lucrative options abound.
- The article noted that her son had allegedly used his position as the person in charge of Mrs. Astor's financial affairs for his own personal gain. But yesterday, his lawyer argued that a recent accounting refuted these allegations. I'm not so sure, especially after reading that during the 25 years he has handled his mother's investments, her assets roughly quadrupled, from $19 million to $80 million. That sounds good, but when I crunch the numbers, I get a compound annual growth rate of 5.9%. Meanwhile, the S&P 500 grew by roughly 11% annually over the past 25 years. If he'd just invested in a simple index fund, as we've long recommended for most investors, he'd have done much better for her.
- The article says Mrs. Astor's portfolio includes not only stock in four dozen different companies but also about $47 million in hedge funds and private equity investments. I don't know how effective her specific investments here have been for her, but in general, it's smart to be wary in these realms. Hedge funds often charge management fees of between 1% to 2% of net assets, along with an extra plus 20% of the profits they generate. When you add in other charges, it's not unusual to pay 3.5% or more annually. Again, a simple index fund might have served her better. (In Mrs. Astor's favor, though, one of her main hedge funds was the Optima Fund, which seems to have a market-beating recent performance -- up 44% over the past five years.)
- The stocks in Mrs. Astor's portfolio included many big names, including Johnson & Johnson
(NYSE:JNJ), Citigroup (NYSE:C), Google (NASDAQ:GOOG), and Cisco Systems (NASDAQ:CSCO). Some might argue about the merit of certain companies in the list (Google, for example, is often seen as overvalued), but in general, it's a rather respectable list of good performers. She also held a variety of energy stocks, and her biggest holding was $3.4 million of Morgan Stanley (NYSE:MS)stock.
So what lessons might we take from Mrs. Astor? Well, the importance of careful estate planning comes to mind. And so does investing effectively for your golden years. Many people start out with enough to live on for the rest of their lives, but somehow run out of moola way too early. Fortunately, Mrs. Astor seems OK, given that she is worth more than $100 million and at 105 may not have too many decades left to live.
Her age offers another lesson, though: Some of us will live to 105 -- and we may not be planning for that or be prepared for it, financially. If you retire at 65 and live to 105, will your nest egg and expected income streams support you for a full 40 years? You need to do some planning: estimating how much you'll need in retirement, how much you have now, how much more you can save and invest, how much it is likely to grow to, how to invest it most effectively, how to minimize taxes, and so on.
Let us help you with that, via our Rule Your Retirement newsletter service. It's prepared by Robert Brokamp, a smart and witty guy who distills what you really need to know into a manageable volume each month. A free trial will give you full access to all past issues, allowing you to gain valuable tips and even read how some folks have retired early and well.
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Here's to a happy retirement -- and a happy 105th birthday, too!