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Considering throwing in the towel and going with a CFP
Old 10-21-2015, 09:15 PM   #1
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Considering throwing in the towel and going with a CFP

About to change my tune and stop doing it myself because I can't figure out how to turn the nest egg into an income stream.

After listening to a weekend morning AM radio show that he hosted, I imagine it was purchased infomercial time, I met with a CFP that has impressed me, for I am highly cynical and suspicious of that industry. This CFP was an exec in the wealth management department of a major insurance company and went on his own in 2006. We are two or three years from retiring and are in good shape with a pension and SS and as for our nest egg of about one million, I need that to throw off about $30K a year. I understand how to invest and grow, but my brain ain’t big enough to figure out the consistent retirement income stream aspect such as dividends, bond ladders and such.

However…unlike the majority of folks on this board, I don’t care to do it myself and I don’t want to go with an annuity. His is a six person office that teams with several other wealth management firms and they pool their clients’ assets of $1.2 billion in a firm titled Capital Asset Advisory Services. The way he explained it, by pooling their assets they get a better deal from TD Ameritrade. The annual fee would be 1.5% and I would get a quarterly check based on the 4% Rule which we will probably bring down to 2.5%. We are conservative investors. What I like about the arrangement is that our funds will be with TD Ameritrade so he does not have possession, we would transfer our 401K and 403b from Fidelity. I like that aspect because I trust no one.

I realize I’m giving up $15K a year but I feel it’s best to have a real pro doing this once we are retired. I have studied investing and learned on my own, thanks to this board, newsletters, podcasts, Bogle books, among other resources, and have made our nest egg grow, but the problem is how to convert this into a regular income stream, minimizing taxes, without turning to annuities. That is what I tried to learn how to do and I think I have given up!

So, do any wise folks here have any advice or concerns I am not considering? Fidelity also has a service similar in terms of retirement revenue streams for a fee of 1.5%, but with this small firm I will get more hand holding.

Thanks!
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Old 10-21-2015, 09:45 PM   #2
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My 1st impression is that you left some info out of your post.
You're gonna pay 15k a year to get 30k income?

I can see this guy doling out your nestegg:
2 for Cheesehead.......1 for me
2 for Cheesehead.......1 for me.

I've seen various FA's say once you've accumulated your nestegg, you need help with the distribution phase and I always thought it was backwards.

Given, I am struggling a bit with the transition to distribution myself, having just retired in August. I am confident that I can strike the right technique which will be some sort of bucket approach.

If you said you needed help to stretch your SWR beyond 4%, and you believed this outfit had some extraordinary expertise it would make more sense, but you are shrinking it to 2.5% and leaving more assets in the account to be hit with the management fee.
At the very least, have you contacted TD Ameritrade or Fido to see what kind of autopilot programs they can offer?
How much benefit do you they get from "pooling resources" with other FA's? (Probably just access to institutional versions of established funds).

Just my .02
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Old 10-21-2015, 09:56 PM   #3
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Forget about generating an income stream. Total return is a better approach.

What is so hard about moving everything to Vanguard, put it all in Wellesley or Wellington depending on your risk appetite, set up an automatic monthly distribution based on 4%, go have fun worry-free and then just adjust annually as needed?

You'll be $15k a year ahead and it is as easy as pie. Think of the fun you can have with an extra $15k a year.

There isn't much tax minimization to do if all your nestegg is all tax-deferred... you take money out and it is ordinary income... its as simple as that. The only minimization opportunity is doing Roth conversions when your tax rate is lower.

Or alternatively, Vanguard offers a similar service for 0.3% a year.
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Old 10-21-2015, 10:00 PM   #4
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I'm with you on the complexity of retirement income especially some of the tax aspects (and I'm a CPA [non-practicing]), but I'm with jazz - $15K per year? That's pretty hefty. I think it's important to get good advice and maybe that's your only viable option, but that hurts just to read. You're situation doesn't seem too far off from mine and I can't give up that much money in fees. To do so, I'd have to believe that on my own, I'd make decisions that would be poor enough to cost me that much money. I don't think that's likely. I'll be doing a lot of reading over the next year or so before my retirement and building something with low cost funds and probably some CD's. I believe that once you get a strategy up and running, it should pretty much run on it's own. Did you ever consider paying someone $10K for a one time consultation/set up and then maybe $1K per year for a check up? I'm not sure if that possible, but I think I could stomach that if it were an option better than the reverse annuity of a 1.5% management fee.
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Old 10-21-2015, 10:03 PM   #5
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I enjoy managing my own investments, but if I didn't I would have no problem whatsoever putting my entire nest egg in Vanguard Wellington. I would never pay anyone 1.5%. I'd be willing to bet that if they use a 60/40 AA, they wont beat Wellington over 5-10 years.

Like pb4uski said, the only thing you have to do to set up your income stream is to sell 4% every year and transfer the money to your checking account.

You will be throwing money away for no good reason.
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Old 10-21-2015, 10:14 PM   #6
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The other thing to look at is the ERs of the funds they put you in. Let's say the average ER of the funds they put you in is a modest 0.5%... that plus the 1.5% is 2% in total that you are paying... compared to 0.18% for Wellesley.

That's a 1.82% difference... $18k a year. And that might be low if they put you in higher ER funds.
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Old 10-21-2015, 10:17 PM   #7
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If you desire assistance, why don't you look for a FA that you pay by the hour instead of % of assets?

I would be surprised if these guys spend more than 10 hours per year on your account. At $1,500 / hr that is very good high compensation that you would be paying them ($3M/year rate).
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Old 10-21-2015, 10:25 PM   #8
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WOW..... just WOW....


Heck, I am a CPA and I will send you a check every month for only $10 per year.... it is not that hard... really...

Also, as mentioned, you can have Vanguard or Fidelity do it for much cheaper....


And here is a thought... pick a retirement income fund and have them send you a monthly check...

Or another.... choose the income stream fund (not sure of its name) at Vanguard.... just say you need a check of $X per month deposited in your account.... set it and forget it... check back every 6 months or even every year.... done....


Or, do what I do... I moved a good amount (10%) of money into the hi yield and the ST bond fund... every month I go in and sell what I need for the months bills... I have changed all my dividends to invest in the ST bond fund, so no more reinvesting for me... I just started it this year and it is working just fine... I also have the two bond funds send me their monthly dividends so I do not have to keep getting the wash sell.... (which I have a really really big number so far this year)....
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Old 10-21-2015, 10:54 PM   #9
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Thanks for the ideas to chew on. I guess when you look at it as paying $15K to get $30K that seems steep, I hadn't thought of it that way. I will look into setting up an automatic monthly distribution based on 3% with Vanguard or see if Fidelity has something similar. I have a comfort factor with Fidelity.

I am not good with numbers as many of you are here, especially the two CPAs, to me crunching numbers would be like a root canal for you. Plus...I don't like spending much time in front of a computer screen strategizing, and by looking at the number of posts many gurus here have, it seems people spend a lot of time on their computer. That would not be my idea of a nice retirement! I also have a DW who, if I lose money, get's quite PO'd. We are conservative and our AA is 40/60.

The way I am looking at it is: I am a highly paid, respected professional in my field yet amateurs, wannabes and do-it-yourselfers attempt to do what I do. They are usually proud of their result but to an old pro like myself their result looks like c**p. So I felt, especially after the anemic returns lately, perhaps I need to admit I need a pro since what I could accomplish would be half assed. In retirement we will need to count on a minimum amount every quarter, like clock work. That is what our spreadsheets are based on.

We do have more funds, the mil is investable assets. It just seems to me, when I visit this board, that most of you regular posters are on the Expert level, so what seems a no-brainer to you is hard for folks that don't actively monitor their portfolio and trade, plus suck at math.

I have never felt comfortable with a FA before this guy, always paid by the hour. He is on my wavelength and didn't set off the BS meter. He's not a market timer, he's conservative, didn't try to push annuities as per usual. Modest office, no bling. My initial thought was to give him 50% and see how it developed. But thanks to the above responses I will look into something more automated for less fees and compare. However, the income stream aspect is a lot trickier than just accumulating.

Thanks!
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Old 10-21-2015, 11:46 PM   #10
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Quote:
Originally Posted by Cheesehead View Post
... In retirement we will need to count on a minimum amount every quarter, like clock work. That is what our spreadsheets are based on... However, the income stream aspect is a lot trickier than just accumulating.
You can set up a steady income stream like earlier posters suggested. That's easy.

Think of your account as a reservoir that a city draws its water from, while the reservoir is refilled by run-off from streams and rains. The water use is usually constant. However, the reservoir level is going to rise and fall with seasons. But historical data tells the city how much it can draw and not to exceed the average inflow and risk running the reservoir dry. That's the SWR (Safe Withdrawal Rate) people talk about.

You can draw whatever you want and keep it steady by yourself. You do not need the FA to do that for you. And the FA is not going to be able to help keep the reservoir level constant. What does he do to help when the market tanks? What does he do to get a return that's 1.5% better than a mutual fund like Wellington or Wellesley to justify his take? And there are other MFs out there too, not just these two.


Quote:
I also have a DW who, if I lose money, get's quite PO'd. We are conservative and our AA is 40/60.

The way I am looking at it is: I am a highly paid, respected professional in my field yet amateurs, wannabes and do-it-yourselfers attempt to do what I do. They are usually proud of their result but to an old pro like myself their result looks like c**p. So I felt, especially after the anemic returns lately, perhaps I need to admit I need a pro since what I could accomplish would be half assed.
Well, that's why you buy a balanced fund instead of picking your own stocks. And a good fund charges you only 0.18%, the ER (expense ratio), not the 1.5%.

And you should get DW to understand that your account will shrink at times, just like the reservoir that your city draws water from. The only guy that promised and could "deliver" a steady portfolio growth was Bernie Madoff.
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Old 10-21-2015, 11:53 PM   #11
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Here's Madoff fund performance. Smooth as silk! Who doesn't like that?

The chart is from this Web page: Bespoke Investment Group: If You Ever See a Chart Like This, Run Away Fast.

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Old 10-21-2015, 11:56 PM   #12
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Quote:
Originally Posted by Cheesehead View Post
About to change my tune and stop doing it myself because I can't figure out how to turn the nest egg into an income stream.
This is so easy you can't believe it. Put everything in one balanced fund, such as Vanguard Conservative Growth. Whatever shortfall you don't get in distribution, just sell enough to make it up. Done. It will beat your CFP after fees. He's doing a version of that, just not showing you the selling part. Your mental block about selling compelled you to pay someone to do the selling for you. Get over it, and you will be $15k richer every year.
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Old 10-22-2015, 01:04 AM   #13
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Cheesehead, when I read your post, my first thought was that you must be in Canada, where MERs are high. But I see you are in the U.S. There is absolutely no justification for a U.S. investor to pay an MER of 1.5%, period. That is just throwing money away.
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Old 10-22-2015, 01:14 AM   #14
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Put everything in one balanced fund, such as Vanguard Conservative Growth. Whatever shortfall you don't get in distribution, just sell enough to make it up. Done. It will beat your CFP after fees. He's doing a version of that, just not showing you the selling part. Your mental block about selling compelled you to pay someone to do the selling for you. Get over it, and you will be $15k richer every year.
Personally, assuming funds are either in Roth or tax deferred, I'd just have the fund set to re-invest and set up a monthly, semi-monthly or biweekly automatic withdrawal of a fixed amount from the Vanguard IRA to my checking account. That way, it feels just like having payroll or pension direct deposit. Just withdraw additional amounts lump-sum as needed (e.g. for large expenses such as roof repair or a new car).

@Cheesehead
You already know how much you need - $30K/year. With your $1M portfolio, that's 1% less than the oft-used 4% SWR. I don't think there's much point in having a CFP to set up your withdrawals. By end of year, look at your portfolio. Portfolio returns are good? Give yourself a "raise". The portfolio did badly? Maybe keep withdrawals the same or take a 5-10% haircut.

I'll even crunch the numbers for you for the "pension" check based on frequency.

Annual: 30,000
Semi-Annual: 15,000
Quarterly: 7,500
Monthly: 2,500
Semi-Monthly: 1,250
Biweekly: 1,153.85
Weekly: 576.92

Vanguard has plenty of low-cost balanced funds to choose from.

On the conservative scale:
Wellesley VWIAX 35/65
LifeStrategy Income VASIX 20/80
LifeStrategy Conservative Growth VSCGX 40/60
Target Retirement Income VTINX 30/70

Quote:
Originally Posted by NW-Bound View Post
Think of your account as a reservoir that a city draws its water from, while the reservoir is refilled by run-off from streams and rains. The water use is usually constant. However, the reservoir level is going to rise and fall with seasons. But historical data tells the city how much it can draw and not to exceed the average inflow and risk running the reservoir dry. That's the SWR (Safe Withdrawal Rate) people talk about.

You can draw whatever you want and keep it steady by yourself. You do not need the FA to do that for you. And the FA is not going to be able to help keep the reservoir level constant. What does he do to help when the market tanks? What does he do to get a return that's 1.5% better than a mutual fund like Wellington or Wellesley to justify his take? And there are other MFs out there too, not just these two.
I love your analogy. And yes, you're absolutely right that the FA can't really help much with portfolio volatility - that's a function of asset allocation.
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Old 10-22-2015, 01:46 AM   #15
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Watch this informative video from Fidelity:
https://www.fidelity.com/learning-ce...ent-plan-video

You can call fidelity and discuss retirement income options for FREE.

Here's a link to Fidelity's managed accounts.
https://www.fidelity.com/managed-acc...ategy/overview

They will manage the account for you at a fraction of the FA's fees (02% to 0.65%)---You will still save money by going with Fidelity.

Do let us know how it all worked out. Good Luck!
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Old 10-22-2015, 01:47 AM   #16
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FWIW, TD Ameritrade has their own similar setup that would be cheaper I bet. I'm not necessarily recommending it more an FYI. I'm sure you could get a similar service from Fidelity at less cost than what you're proposing. In any event going with your CFP - who uses TD Ameritrade - offers little more than an extra level of fees IMHO.

In terms of mutual funds, Fidelity Puritan would be an alternative to Wellington. Compared to your small CFP, you'd have a major organization to count on and likely local offices where you can have questions answered and face to face discussions if needed. IMHO, lack of bricks and mortar is a drawback to Vanguard. Yes, they have low expense ratios but ultimately long term performance is what you're after and a low expense ratio doesn't necessarily provide the best performance.
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Old 10-22-2015, 06:40 AM   #17
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Cheesehead - do some grammar school math. You say you need 3% of your $1M. Your FS is going to take 1.5% off the top and hopes to get you down to 2.5% SWR? What, does he propose to double your portfolio in a couple of years with a magic wand? Run, do not walk away from this guy. Pick any of the suggestions in this thread (Wellington/Wellesley, a life cycle fund, anything), save your $15K/year and live in piece. Do you seriously think a bond ladder is going to make up for your $15K/year? You don't need no stinking ladders and you don't need your FA's obfuscation.
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Old 10-22-2015, 07:44 AM   #18
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So I felt, especially after the anemic returns lately, perhaps I need to admit I need a pro since what I could accomplish would be half assed. In retirement we will need to count on a minimum amount every quarter, like clock work. That is what our spreadsheets are based on.
If it's any consolation, the market in general hasn't been doing so hot lately, so many people have probably seen anemic returns these past couple years.

Last time I checked, I was only up around 1.7% YTD. Last year, I think I was up around 5.6%. 2012-13 were good years, but in 2011, I actually lost a little money. Very little, something like 0.2%. But, I'm still in the accumulation phase, so if I had to withdraw money that year to live off of, it would have put a pretty big ding in the portfolio.
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Old 10-22-2015, 07:49 AM   #19
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Thanks guys for giving me a shot of confidence. I'll look into it with a fund from Fidelity or try Wellington. I do believe Fidelity will charge me $75 for every $1000 I transfer to Vanguard which could make it expensive.

This CFP takes a holistic approach, basically manages the total financial part of your life with estate planning, taxes, insurance such as LTC, etc. But you guys are correct, $15K is a lot when considering all I want is 3% from $1mil. I will bite the bullet, get over my numbers phobia and learn how to do it.

Best regards
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Old 10-22-2015, 08:07 AM   #20
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What is your money invested in at Fidelity that they charge you $75 per $1000 to move it? I think you are confused. That cant be right.
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