Consolidate or keep eggs in separate baskets?

[merlin3942]

Hi everyone,
Was very excited to find this forum a couple of days ago. Have been reading lots of interesting threads. Finally screwed up my courage to actually register so I can start posting. I'm in that "FIRE now, or wait n more years" stage. The more I read here, the more I feel like I'm ready to FIRE!.

I'm 59, single, no kids, and through "living below my means" for over 35 years, have managed to build up a retirement nest egg of just over $3 million. I'm finally convinced that I'd have a hard time out-living that (especially since I don't expect my lifestyle to change much in retirement).

A little over half of my retirement portfolio is currently with TIAA-CREF (I've worked in academia for all of my career). The remainder is split between 3 separate brokerage accounts with Morgan Stanley, Wells Fargo, and M&T Bank. They are each individually balanced with the typical 60/40 stocks/fixed split.

As you might imagine, the advisors at each of the individual brokerages, including TIAA-CREF, are all wanting me to roll all my assets into a single account at their particular institution, so they can manage it all for me at one place (they all push their version of a "managed account"), and if I combine everything, the fee is less than 1%.

I really don't want to have to spend a lot of time tracking paperwork in retirement. It sounds pretty complicated to start keeping track of the various asset classes (i.e. 401K, Traditional IRA, Roth IRA, taxable accounts w/ capital gains, etc, etc) to figure out what the "optimum mix" would be to minimize the tax hit as I start to use those accounts to generate income. So it's very tempting to just "turn the keys" over to one of these firms, and let them handle it for me.

I've always had the philosophy of not keeping all my eggs in one basket - I thought that was part of "diversification". I actually used to have 3 or 4 more separate accounts at separate institutions, but over the years, through various mergers and acquisitions in the financial world, I'm now down to the 4 mentioned above.

SO, my first post on this forum is to ask about what others' experiences may have been with any of these firms in particular, and whether it makes sense to combine all the accounts with a single institution, and whether it makes sense to let one of them "run the show" for me (i.e. go the "managed account" route).

Thoughts?

Thanks!
--Merlin

 

[walkinwood]

Google site:early-retirement.org "eggs in one basket"

This has been discussed multiple times. The forum search isn't as good as using the site: keyword in google.

Personally, I use a single brokerage. More money in one brokerage equates to better service levels.

Welcome to the forum.

 

[MRG]

You need to ask what am I trying to protect myself against? Even with separate brokerage accounts, there is an amazing amount of shared infrastructure in financial services.

Im sure you'll get some good advice on the cons and pro of paying someone 1% to manage your money. Welcome to the forum and best wishes. MRG

 

[Texas Proud]

You need to ask what am I trying to protect myself against? Even with separate brokerage accounts, there is an amazing amount of shared infrastructure in financial services.

Im sure you'll get some good advice on the cons and pro of paying someone 1% to manage your money. Welcome to the forum and best wishes. MRG

+1 on this....


And I would not combine all assets with anyone who wants to charge me so high a fee....

 

[nun]

I'd leave the TIAA-CREF stuff where it is for the moment and make sure you understand the investment and annuity options you have with them. TIAA-Traditional and their annuity products are excellent foundations or a retirement, particularly if you have an old TIAA-Traditional account that guarantees at least 3%. You could buy a fixed annuity from TIAA-CREF and, get around an 8% payout rate, that's the rate I got for a single life annuity starting at 55. That would give you guaranteed income and when SS starts you'd have some inflation protection too.

I'd move the rest of your money to Vanguard and invest in low cost mutual funds and use that to supplement your annuity income. You could also look at funds
like Wellington or Vanguard's managed payout things if you want to keep things simple.

This might not be the most tax efficient solution or maximize your potential returns, but it would be simple.

 

[heeyy_joe]

3 million? Good job! Determining asset mix ain't hard, being lazy about this can get expensive. Consolidate to Fidelity and/or Vanguard.

 

[pb4uski]

Diversification is between asset classes or within an asset class. I don't view using different providers as providing diversification.

You could easily DIY and increase your income by $30k a year. Once you decide on an AA and conform your portfolio to your AA, it might take you 5-10 hours a year to monitor and maintain it. Many of us spend more time but more because we want to and enjoy it rather than because we have to.

If each of your accounts is about 60/40 then your overall portfolio may not be as tax-efficient as it could be.

 

[nun]

Diversification is between asset classes or within an asset class. I don't view using different providers as providing diversification.

Having TIAA-CREF does provide some diversification as they have a couple of unique products. I ER'ed with TIAA-CREF and Vanguard and it give some nice options.

Also the OP should watch out for any issues that might go along with rolling over your academic retirement funds from TIAA-CREF.

I have a 401a DC plan with TIAA-CREF and if I roll it over to another provider I would lose some retirement health care benefits.

 

[mrfeh]

You could easily DIY and increase your income by $30k a year. Once you decide on an AA and conform your portfolio to your AA, it might take you 5-10 hours a year to monitor and maintain it. Many of us spend more time but more because we want to and enjoy it rather than because we have to.

+1000

I would never pay somebody $30K/year to do something I can do myself, in a few hours. If you feel you need help/support, wander over to bogleheads.org.

 

[Chuckanut]

I would never pay somebody $30K/year to do something I can do myself, in a few hours. If you feel you need help/support, wander over to bogleheads.org.

+1

There are a number of Lazy Portfolios that are published for free on the Internet. A few hours once a year to balance the AA is about all the work it takes. No need to knock yourself out with fancy calculations and micro management of your accounts.

One could even do something very simple like put all your money into Vanguard Wellesly and/or Wellington and just tell them to send you a check every month. I think one of our esteemed moderators does this. It might not maximize your spendable dollars but I would think it would cost less than $30,000 a year over the long run.

Here's one article. Take what you want and leave the rest.

http://www.obliviousinvestor.com/8-sample-and-simple-portfolios/

 

[merlin3942]

Thanks to all for your feedback/ideas.

The primary reason I thought I would need "professional management" is to figure out the optimal withdrawal strategy as far tax consequences (i.e., what order do I start withdrawing funds ... 401K/Trad. IRA? Roth IRA? After-tax accounts? some "magic combination" of all of the above?) Thinking about that kind of stuff makes my head spin ... and makes me think I'm not ready for "RE" yet after all .... much easier to just keep working! ;-)

 

[kaudrey]

The calculator i-orp can help you with tax planning. It's not perfect, but it can provide some guidelines - just do a google search for it. I agree that a Vanguard account with a few low cost funds would be good for you - a "set it and forget it" type of account.

 

[Chuckanut]

The primary reason I thought I would need "professional management" is to figure out the optimal withdrawal strategy as far tax consequences (i.e., what order do I start withdrawing funds ... 401K/Trad. IRA? Roth IRA? After-tax accounts? some "magic combination" of all of the above?) Thinking about that kind of stuff makes my head spin ... and makes me think I'm not ready for "RE" yet after all .... much easier to just keep working! ;-)

You are quite right. That is an area where professional help can be very useful and profitable. But, you don't have to pay 1% of your assets year after year to get it. Rather, find a good CPA and pay him/her to crunch the numbers and tell you the results.

 

[Bestwifeever]

If you took $3 million to Vanguard or Fidelity, etc., you will find lots of complimentary help from their financial folks to determine an asset allocation based on your risk level and probably reasonably priced or complimentary tax advice. No need to keep paying for financial management year after year to get this set up once.

But if you are not comfortable managing your own money or just prefer not to (there actually are some people here who use advisors periodically or regularly), you might want to at least learn about what you are paying the financial managers to do, to be sure they are acting in your best interests.

 

[target2019]

Thanks to all for your feedback/ideas.

The primary reason I thought I would need "professional management" is to figure out the optimal withdrawal strategy as far tax consequences (i.e., what order do I start withdrawing funds ... 401K/Trad. IRA? Roth IRA? After-tax accounts? some "magic combination" of all of the above?) Thinking about that kind of stuff makes my head spin ... and makes me think I'm not ready for "RE" yet after all .... much easier to just keep working! ;-)

The best advice for taxes and withdrawals does not necessarily come from professional management. You owe it to yourself to get up to speed on these large issues.

I'd contact Fidelity and Vanguard sources online, and ask a lot of questions in this thread.

 

[merlin3942]

Thanks for the pointer to the i-orp calculator - what an amazing tool! Of course, it's going to take me a while to fully understand all the information it is giving me!

It does raise another question (which may be why I need "professional help" with all of this). My current "taxable savings accounts", and even some of the tax deferred accounts, all include a combination of various mutual fund shares, but also a number of individual stocks. If/when I were to "liquidate" those (as I assume I would do if I consolidate everything to something like Vanguard mutual funds), I would be subject to pretty large capital gains taxes. I'm assuming I wouldn't really ever want to do that all at once, but rather just sell off those shares a little bit at a time spread out over a number of years to minimize the overall tax hit. Is there a similar program out there like i-orp that can come up with the "optimum plan/strategy" for managing all that? Or is this something best left to a professional?

Speaking of professional, I've only ever dealt with the "financial advisors" at the various brokerage firms. Sounds like what I really need/want is a CPA? Any hints on how to go about finding a good one one? i.e., do I really need a "tax expert", or a "financial planner" ("retirement planner")? Or do all CPA's have all those same skills?

Thanks!

 

[FANOFJESUS]

Not counting what comes from the 3 million what will your income be in retirement? Any social security or pensions?

 

[MBAustin]

In terms of an advisor, most of us here would suggest a "fee-only" provider. Check out Fee-Only Financial Advisors Home - NAPFA - The National Association of Personal Financial Advisors.

CPAs generally advise on taxes, not investments.

 

[merlin3942]

Not counting what comes from the 3 million what will your income be in retirement? Any social security or pensions?

No pensions.

Social Security ... but I'm not planning on starting that until I'm 70 (which I understand is also when the dreaded RMD's also kick in ). So I'll be living solely off the withdrawals from my retirement accounts for about 16 years.

 

[merlin3942]

In terms of an advisor, most of us here would suggest a "fee-only" provider. Check out Fee-Only Financial Advisors Home - NAPFA - The National Association of Personal Financial Advisors.

CPAs generally advise on taxes, not investments.

Thanks, I'll take a look at this. Of course, the financial advisors at the various brokerage firms who want to manage my account for a "fixed percentage" of the value of the portfolio also call that arrangement "fee only", so that's pretty confusing. They don't charge separate commissions at all for any transactions. They promote it by saying if the account doesn't do well/grow/profit, neither do they. But of course, in a "down year", they still get their fixed percentage ... just of a potentially smaller amount. So is there a separate term that distinguishes that sort of "fee-only" provider from someone who just bills either a one-time (or per visit) flat fee, or even a hourly rate?

And it seems like I need someone who does know about taxes, at least enough to make sure the withdrawals from the various accounts are done in the most tax efficient manner possible?

 

[pb4uski]

....It does raise another question (which may be why I need "professional help" with all of this). My current "taxable savings accounts", and even some of the tax deferred accounts, all include a combination of various mutual fund shares, but also a number of individual stocks. If/when I were to "liquidate" those (as I assume I would do if I consolidate everything to something like Vanguard mutual funds), I would be subject to pretty large capital gains taxes. I'm assuming I wouldn't really ever want to do that all at once, but rather just sell off those shares a little bit at a time spread out over a number of years to minimize the overall tax hit. Is there a similar program out there like i-orp that can come up with the "optimum plan/strategy" for managing all that? Or is this something best left to a professional?....

Selling securities held in your tax deferred accounts have no tax consequences, the only tax consequence is when you take money out of the account (aka withdrawals). Sale of securities held by taxable accounts do have tax consequences, but in many cases the securities themselves can simply be transferred to the new provider (for example Vanguard) without tax consequences. If you set up an account with Vanguard, they have people who can lead you through the process. Or you can always ask here.

 

[urn2bfree]

First do not even CONSIDER paying anyone on a percentage basis. It costs them the same to figure out a plan for you for an account of $1million or $3 million, but they will charge you TRIPLE the amount. I understand your reluctance to go it alone. I, too, fretted about optimizing accounts against tax liabilities. And for a time I paid 0.5% of my money to get it right. Then I discovered flat rate advisors. There are several and I now pay less than 0.08% (and as my portfolio grows the amount stays the same and the percent gets lower and lower!)
Choices include Cardiff Park Advisors, Evanson Asset Management, and FPL..

 

[FANOFJESUS]

I love this forum but for this question ask it here Bogleheads Investing Advice and Info they are very very detailed. When you are done show us the results. They will walk you through what to do for free.

 

[ChicagoGal]

And it seems like I need someone who does know about taxes, at least enough to make sure the withdrawals from the various accounts are done in the most tax efficient manner possible?

The tax piece is the part that I struggle with the most as well. I've already gotten a lot of great information here, at least enough to figure out many of the questions I need to ask/answer. And then I'll probably engage a tax specialist at some point to fine tune the answers, especially since tax laws seem to change regularly. I also might get a financial plan review at Vanguard (it will cost me, since without my 401k, I wouldn't qualify for their free ones) once I get all of my miscellaneous accounts consolidated over there.

 

[pb4uski]

The tax piece is the part that I struggle with the most as well. I've already gotten a lot of great information here, at least enough to figure out many of the questions I need to ask/answer. And then I'll probably engage a tax specialist at some point to fine tune the answers, especially since tax laws seem to change regularly. I also might get a financial plan review at Vanguard (it will cost me, since without my 401k, I wouldn't qualify for their free ones) once I get all of my miscellaneous accounts consolidated over there.

There is a specialist designation for CPAs called a PFS or Personal Financial Specialist and what you want would be in their wheelhouse. You can find one at CPA/PFS Credential Holder Directory

That said, most find it is best to withdraw first from taxable accounts, do Roth conversions as they can to the top of the tax bracket they will be in once SS and RMDs start and tap tax-free accounts last, but it is best to do some analysis to prove or disprove what is best in your circumstances.

i-orp is also a useful tool, though sometimes difficult to understand the rationale for its results.