AA out of whack for retired couple

[Tailgate]

Greetings all! I also posted this to Bogleheads forum,hoping to gain some AA suggestions and input into coming transfer of my DW inheritance from Edward Jones to an allocation TBD in Vanguard.

Current situation

Both retired end of 2013. I’m 64, DW is 59.
No debt, no kids
Tax married/jointly
Rate 15%
Texas resident

Current income from SS (mine), pensions (mine and hers) and 4% distribution from high 6 figure portfolio.

Edward Jones Account
Joint Tenants with Right of Survivorship Exp Ratio % of Account
AF Global Balanced A GBLAX 0.89 8%
AF American Hi-Income TR A AHITX 0.66 8%
AF Capital Income Builder A CAIBX 0.62 15%
AF Capital World Bonds A CWBFX 0.90 6%
AF Capital World Growth Income A CWGIX 0.77 10%
AF Income Fund of America A AMELX 0.57 15%
AF New Perspective A ANWPX 0.76 6%
Maturity Coupon
Wells Fargo & Co Sr Unsecd Nt 12/17 5.63 4%
Credit Suisse NY Brh Sub Note 2/18 6.00 3%
GE Capitgal Corp Internotes 9/26 4.5 4%
GE Capital Corp Internotes 3/27 5 4%
Bank America Corp 11/1 5.3 9%

Cash 8%

Edward Jones Account
HER Traditional IRA Exp Ratio % of Account
Capital Income Builder Fund A CAIBX 0.62 10%
Capital World Grw & Inc Fund A CWGIX 0.77 10%
Hartford Cap Appreciation CI A ITHAX 1.1 18%
Hartford Midcap Fund CI A HFMCX 1.15 10%
Investment Co of America FD A AIVSX 0.59 26%
New Perspective Fund CI A ANWPX 0.76 26%

Vanguard Account
HIS Rollover IRA Brokerage Account Exp Ratio % of Account
Vanguard Inflation Protected Securities Fund VAIPX 0.1 47%
Vanguard Total Stock Market Index Fund VTSAX 0.05 53%

HER Rollover IRA Exp Ratio % of Account
Vanguard Total Bond Market Index Fund VBTLX 0.07 40%
Vanguard Total Internation Bond Index Fund VTABX 0.19 9%
Vanguard Total International Stock Index Fund VTIAX 0.14 12%
Vanguard Total Stock Market Index Fund VTSAX 0.05 39%

80% of the assets are taxable (IRA's)
20% are tax free, so we're told.. due to the inheritance (Joint Tenants Right of Survivorship..whatever that means)

The EJ inheritance has changed to AA considerably and it is the rebalance that I’m hoping to get some help with based on our ages and desire to keep it simple. I’d like to stay within Vanguard.

I’m guessing that, at our ages, we should be moving towards 50/50, but the bond market doesn’t seem to be performing as it has historically, so is there a different strategy to investigate?

Thanks in advance! Will be glad to provide more info, if needed.


edited to correct errors

 

[RunningBum]

82+24>100 so that's not your ratio. VAIPX is not a stock fund. You're really at 62/38, assuming the Edward Jones MF is really a stock fund.

 

[RetireBy90]

Looks like you are about 68% stocks, 32% bonds. I would suggest AA should depend on how your income from your assets match up with expenses. If you can meet your expenses with a 60/40 why go to 50/50? You and DW may have another 30 years to fund so you may need some growth to keep assets up with needs.

I have tried to keep my AA simple,
60 stocks, 20% U.S. Large cap, 20% U.S. Mid/small, 20% non U.S.
40% fixed income, 20% U.S. Total bond and 20% non-U.S.

I'm not a pro, and wouldn't want to suggest this will work for any others, but with 2 pensions and expecting 2 SS checks, we don't need a lot of income from our assets. I'd rather have them grow in case I really missed something in my planning.

look at what you want to draw from your assets each year and develop a plan to meet that.

 

[RetireBy90]

One more quick post back, I'm not really good at figuring what a specific asset should count as. Morning star says one thing, fidelity computes another, and my own worksheet where I track my AA is different than both. One problem is that some funds will be less than 100% invested in what they claim to be, but it is more then that. When I RE I'll need to be more careful and figure where the differences come in.

 

[Tailgate]

82+24>100 so that's not your ratio. VAIPX is not a stock fund. You're really at 62/38, assuming the Edward Jones MF is really a stock fund.

I was pretty far off on that... I ran the Vanguard Portfolio analysis and I'm a lot closer to my original target AA than I thought.. The EJ funds will throw it off, so that's where I need to figure out where to put it.

 

[pb4uski]

The OP suggests that the EJ funds were inherited... if so, do they have a stepped-up tax basis so if you want to make a move the tax bite would be modest?

 

[Tailgate]

The OP suggests that the EJ funds were inherited... if so, do they have a stepped-up tax basis so if you want to make a move the tax bite would be modest?

I don't know what a stepped-up tax basis means...will have to research that... I was told that one account was after tax and one was taxable.

edit...ok, after wikipedia, I think I have a general idea of the question... I was told by the FA that the account that represents 60% of the inheritance, is tax free to my DW. It is listed as 'Joint Tenants With Right of Survivorship' . I'm also on that account. The other is a t-IRA. So, do I need to get clarification on the Joint account to make sure that there are no taxes to be paid at withdrawal? Would we be paying income tax as ordinary income if we access the account, say to help pay on a new home?

 

[Tailgate]

bumping this after editing to correct my errors and clarifying the accounts we hold ...

Greetings all! I also posted this to Bogleheads forum,hoping to gain some AA suggestions and input into coming transfer of my DW inheritance from Edward Jones to an allocation TBD in Vanguard.

Current situation

Both retired end of 2013. I’m 64, DW is 59.
No debt, no kids
Tax married/jointly
Rate 15%
Texas resident

Current income from SS (mine), pensions (mine and hers) and 4% distribution from high 6 figure portfolio.

Edward Jones Account
Joint Tenants with Right of Survivorship Exp Ratio % of Account
AF Global Balanced A GBLAX 0.89 8%
AF American Hi-Income TR A AHITX 0.66 8%
AF Capital Income Builder A CAIBX 0.62 15%
AF Capital World Bonds A CWBFX 0.90 6%
AF Capital World Growth Income A CWGIX 0.77 10%
AF Income Fund of America A AMELX 0.57 15%
AF New Perspective A ANWPX 0.76 6%
Maturity Coupon
Wells Fargo & Co Sr Unsecd Nt 12/17 5.63 4%
Credit Suisse NY Brh Sub Note 2/18 6.00 3%
GE Capitgal Corp Internotes 9/26 4.5 4%
GE Capital Corp Internotes 3/27 5 4%
Bank America Corp 11/1 5.3 9%

Cash 8%

Edward Jones Account
HER Traditional IRA Exp Ratio % of Account
Capital Income Builder Fund A CAIBX 0.62 10%
Capital World Grw & Inc Fund A CWGIX 0.77 10%
Hartford Cap Appreciation CI A ITHAX 1.1 18%
Hartford Midcap Fund CI A HFMCX 1.15 10%
Investment Co of America FD A AIVSX 0.59 26%
New Perspective Fund CI A ANWPX 0.76 26%

Vanguard Account
HIS Rollover IRA Brokerage Account Exp Ratio % of Account
Vanguard Inflation Protected Securities Fund VAIPX 0.1 47%
Vanguard Total Stock Market Index Fund VTSAX 0.05 53%

HER Rollover IRA Exp Ratio % of Account
Vanguard Total Bond Market Index Fund VBTLX 0.07 40%
Vanguard Total Internation Bond Index Fund VTABX 0.19 9%
Vanguard Total International Stock Index Fund VTIAX 0.14 12%
Vanguard Total Stock Market Index Fund VTSAX 0.05 39%

80% of the assets are taxable (IRA's)
20% are tax free, so we're told.. due to the inheritance (Joint Tenants Right of Survivorship..whatever that means)

The EJ inheritance has changed to AA considerably and it is the rebalance that I’m hoping to get some help with based on our ages and desire to keep it simple. I’d like to stay within Vanguard.

I’m guessing that, at our ages, we should be moving towards 50/50, but the bond market doesn’t seem to be performing as it has historically, so is there a different strategy to investigate?

Thanks in advance! Will be glad to provide more info, if needed.


edited to correct errors

 

[growing_older]

Generally speaking, Edward Jones is an expensive place to hold assets. For anything that is now in an IRA (or 401k 403b etc) you will need to pay income tax on distributions as the money is withdrawn - and you need to understand the very particular rules how to title these accounts and how to take distributions. MOST brokers will get this wrong and it can cost you dearly. Research on your own. Look up Ed Slott, if necessary.

Anything not entailed in a tax deferred account should get a stepped up basis on inheritance. Basically this means you treat it as if the cost to acquire was the market price at time of death or time of inheritance, depending on details. This means you can SELL any of these with minimal or no capital gains. An excellent time to clean house and buy what you really want.

Beware of Edward Jones fees for liquidating or closing accounts.

 

[Accidental Retiree]

Be sure and check on how opening a designated beneficiary IRA works.

You may not need to take the entire IRA amount all at once.

It is not exactly a rollover, if it is not an IRA inherited from your spouse, but you could have a couple of distribution options so that you do not take the tax hit all in one year.


Sent from my iPhone using Early Retirement Forum

 

[Tailgate]

some additional information...

The EJones accounts are both inherited from MIL death in May. The Joint account was set up for my DW and I after her death. The traditional IRA is in DW name and also set up after MIL death.
The Vanguard accounts are all rollover accounts from my 401k and her 403b

Accounts accounting for all assets
EJ Joint account 19%
EJ traditional IRA (Hers) 13%
His Vanguard rollover IRA 33%
Her Vanguard rollover IRA 35%

I have talked with Vanguard and they can hold all of the funds and bonds that are in the EJ account. Other than saving fees and the 2% reinvestment commission on gains, I don't know how I should proceed with the transfer....should I move to Vanguard index funds? The bonds look like good investments bought along time ago at healthy rates. I'm not a knowledgable investor, so I need to keep things simple.

I'm under the impression that a transfer can be made without initiating a taxable event. Is that correct?

 

[RetireBy90]

So an IRA can be transferred without a taxable event, just tell vanguard and they can do a direct transfer. Key is you don't control of the assets, it is a trustee to trustee transfer. I deal with Fidelity, and all I had to do was identify the accounts I wanted transferred and they did it for me. My IRAs and an inherited one. Key on inherited IRA is to get it titled properly. Mine is something like

Trowe Price custodian for the IRA of John Smith Sr (DCD) and John Smith Jr (Bene).

Once you get the accounts transferred, I personally, would pick one U.S. Bond fund from vanguard, and one intl bond fund, one for each asset class your AA what ever your AA calls for, and they would all be Vanguard. This would keep it simple.

In taxable accounts, put stock index funds, no tax due till you sell, except any dividends you receive.

In tax free accounts (Roth IRA), put assets with highest payouts, no tax will be due.

What is left goes into Trad IRAs.

These are only guidelines, one way to structure where to put different asset classes. Another way is to make each account match your AA. It can be easier to rebalance this way.

I know you say you aren't well versed in retirement finance topics, but my advice is you need to educate yourself at least enough to understand why your AA is like it is, and why you placed specific asset classes in each type of account. You can get good advice here, but you can also get bad advice. If you were to take my advice and it didn't work out, you can't come back to me to make it right. Either get educated or hire an advisor on an hourly basis is cheapest, and they you have to trust them. It is your $$. Not trying to be a meanie, but if you are relying on this money, you need to know when your being taken or mislead.

 

[Tailgate]

I know you say you aren't well versed in retirement finance topics, but my advice is you need to educate yourself at least enough to understand why your AA is like it is, and why you placed specific asset classes in each type of account. You can get good advice here, but you can also get bad advice. If you were to take my advice and it didn't work out, you can't come back to me to make it right. Either get educated or hire an advisor on an hourly basis is cheapest, and they you have to trust them. It is your $$. Not trying to be a meanie, but if you are relying on this money, you need to know when your being taken or mislead.

Point taken. I've invested using Scott Burns portfolio examples initially. I think FA's in the past have scrambled my brains regarding investing, plus I'm not a numbers guy at all. I was at the top of the game at my job, but I never paid attention to educating myself for the end game... In looking at my former co-workers with regard to retirement, it's sad to realize that they, too, are clueless about preparing for the future. A lot of folks on this forum are exceptional planners and are a blessing for those of us who need to ask basic questions.

 

[Telly]

........I have talked with Vanguard and they can hold all of the funds and bonds that are in the EJ account. Other than saving fees and the 2% reinvestment commission on gains, I don't know how I should proceed with the transfer....

I have talked with Vanguard and they can hold all of the funds and bonds that are in the EJ account.

Vanguard will put their own wrapper around American Funds? Why?

Is there any continuing Edward Jones fee on any American Funds funds EJ holds, other than the 12b-1 fee that A/F pays to EJ out of the posted A/F funds Expense Ratio?

Other than saving fees and the 2% reinvestment commission on gains,

"2% reinvestment commission on gains"? Whose fee is that? That's not an American Funds fee... once it's in, it's in.

 

[Tailgate]

Vanguard will put their own wrapper around American Funds? Why?

Is there any continuing Edward Jones fee on any American Funds funds EJ holds, other than the 12b-1 fee that A/F pays to EJ out of the posted A/F funds Expense Ratio?

"2% reinvestment commission on gains"? Whose fee is that? That's not an American Funds fee... once it's in, it's in.

When I spoke with Vanguard and listed each of the funds in both accounts, the advisor stated that they could hold those funds under a transfer in kind.

EJ states a $300 per IRA annual fee and they do take the 2% on all reinvested gains. It looks like this is in addition to the 12b-1 fee.

 

[eytonxav]

This link is a fidelity one, but it provides useful info on options for inherited IRAs:
https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices

 

[GTFan]

When I spoke with Vanguard and listed each of the funds in both accounts, the advisor stated that they could hold those funds under a transfer in kind.

EJ states a $300 per IRA annual fee and they do take the 2% on all reinvested gains. It looks like this is in addition to the 12b-1 fee.

Wow, typical financial firm nonsense. Transfer EJ IRA to Vanguard then immediately dump all those overpriced expense funds for VG index funds using whatever AA you feel comfortable with (no tax hit). The taxable stuff you can sell at low cost due to stepped-up basis, then put the money into VG.

 

[Telly]

EJ states a $300 per IRA annual fee and they do take the 2% on all reinvested gains. It looks like this is in addition to the 12b-1 fee.

Owww! We have A/F funds through an independent shop. The 12b-1 is all they get, no other fees, restrictions, etc. We have 2 of the funds that you have now, CWGIX and AMECX (you listed AMELX, I think you meant AMECX). I have no problems with either, had them for quite a few years now. AMECX is income-heavy, and that is its purpose. Someone who is not retired, not needing the income, would not want to hold AMECX in a taxable account. For me, I'm using it for its design purpose, pumping Divs with very little variability, into our checking account four times a year to help with living expenses. It's a reliable pumper.

 

[Tailgate]

Owww! We have A/F funds through an independent shop. The 12b-1 is all they get, no other fees, restrictions, etc. We have 2 of the funds that you have now, CWGIX and AMECX (you listed AMELX, I think you meant AMECX). I have no problems with either, had them for quite a few years now. AMECX is income-heavy, and that is its purpose. Someone who is not retired, not needing the income, would not want to hold AMECX in a taxable account. For me, I'm using it for its design purpose, pumping Divs with very little variability, into our checking account four times a year to help with living expenses. It's a reliable pumper.

You are correct...it is AMECX... now I'm really pissed because EJ takes 2% of each reinvested dividend.. calling Vanguard today. Decided on 3 fund with 30% domestic, 20% international and 50% total bond.

 

[MRG]

You are correct...it is AMECX... now I'm really pissed because EJ takes 2% of each reinvested dividend.. calling Vanguard today. Decided on 3 fund with 30% domestic, 20% international and 50% total bond.

Congratulations on your decesion. Run away from ED. He's a rip off.

 

[Telly]

You are correct...it is AMECX... now I'm really pissed because EJ takes 2% of each reinvested dividend.. calling Vanguard today. Decided on 3 fund with 30% domestic, 20% international and 50% total bond.

Well that explains why EJs have popped up like franchised burger places! I didn't know that they layer in their own fees on top.

 

[Tailgate]

OP here.... about 10 minutes on the phone with Vanguard and one on the accounts is moving over as soon as I can get the paperwork in. One more to go. It's always amazed me how customer oriented Vanguard seems to be (at least in my experience). They make things easy and explain things well.