Stop me before I do something stupid

[Crnhzkr]

I'm 59 and hoping to retire next spring. I have about 2.3m, but it's spread out in three piles and I want to consolidate it into one big pile and am trying to figure out if I should DIY or turn it all over to a FA. I've opened an account with M1 Finance (anyone else using this online brokerage?) and what I am considering doing is to create a pie made up of Vangaurd ETFs something like this:

Vangaurd ETF	Asset Class	% Allocation
VOO	Large Blend	10%
VOOV	Large Value	10%
VIOO	Small Blend	10%
VB	Small Value	10%
VXUS	Total Intl	10%
VNQ	REIT	10%
BND	Total Bond	40%

Currently, my holdings are spread across Fidelity, Ed Jones, and Etrade and they look like this (in Ks):

Fidelity:

Taxable - 123

Trad IRA - 1134

401K - 127

Ed Jones:

Taxable - 47

Wife's IRA - 58

Wife's ROTH - 142

My ROTH - 138

ETRADE:

Taxable (stocks) - 311

Wife's ROTH - 88

My ROTH - 88

Right now, I'm paying Fidelity to manage my IRA and some of the other money, and of course I'm paying Ed Jones. I was thinking I would close out my Ed Jones money and move my IRA into the pie above and my ROTHs into a similar pie. I think I'm paying Fidelity about .83% and I don't even know what I'm paying EJ, but I know it ain't cheap.

So I guess my questions are, does it make sense to do this? Is this basically what others are doing?

A big concern I have with DIY retirement investing is, how do you know which account to draw from to minimize your tax liability? If I turned it all over to a FA, they would be able to help with this. Thank you for the input and advise!

 

[sengsational]

The difference between "doing it perfectly" and fumbling through it in an obviously incorrect was is less than it costs to pay an advisor under almost any "AOM" scheme.

In other words, you DIYing it "wrong" would put you ahead of paying X% per annum on assets under management.

If you are at all inclined to play with it, you can get your distributions optimized, or at least pretty darn good. It's not rocket science. You generally spend after tax first, and many people will do Roth conversions to fill up low marginal tax brackets. By the time your after tax runs low, you'll be an old hand at it, and it won't seem at all daunting.

There are tools, but we don't need to go there today. Know that you have tools and a place to ask about them. From people who were just like you, and are now comfortable in the DIY world.

For now, consolidate brokerages, if you wish, and certainly quit paying the AOM fees. I'm not sure why you'd want to go anywhere besides Fidelity, as you already have an account there. Fidelity and Vanguard are my two...both have good customer service and low cost or free trades. Not sure about M1... never heard of it.

 

[HI Bill]

The FA's at VG that I've talked to don't seem to be much/any help when it comes to withdrawal strategies that consider taxes. I'd skip going the FA route, and consolidate as you're thinking. No reason to pay 0.83%, when you can pay 0.01-0.05%. Ensure that you roll over tax-deferred accounts so that you don't take an immediate tax hit.


Once that's done, I'd create a spreadsheet that helps you with a tax strategy.

Taxable accounts: Determine your basis (purchase prices), and calculate the % of the current total that are STCGs or LTCGs. If you're under RMD age, you may want to harvest LTCGs at the 0% tax rate (MFJ adjusted gross income <$80K). Others may advise ROTH conversions.

Traditional IRA and 401(k): Proceeds are 100% taxable, at normal tax brackets. Normally, you'd tap these starting at age 59.5, unless you retired between the year your turn 55 and 59.5, in which you can take proceeds penalty-free.


ROTH IRA: Earnings are tax-free, as long as you start distributions at 59.5 or later. Principal may be withdrawn at any time, tax-free, even before 55.

You may well be able to have a spending rate of $120K and pay no federal taxes if you use the LTCGs rule to your benefit.

 

[jebmke]

I know a couple FAs socially - they aren't that knowledgeable on taxes. They know enough to prepare a return but that's often different from advising someone on tax matters related to investing.


I work with a lot of very skilled tax preparation people but when I explained tax loss harvesting or tax rate arbitrage strategies with Donor Advised Funds, they looked at me like I was speaking Martian.

 

[davebarnes]

40% bonds are way too high, in my opinion.

And, read this https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

 

[audreyh1]

40% bonds are way too high, in my opinion.

And, read this https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

For retiring next spring at age 59? Why?

I don’t see where your link suggests lower bond allocation.

 

[Navigator]

Your AA looks quite reasonable to me. Taxes can be complex and your best strategy depends on when you plan to take SS. I would hire an accountant to advice on taxes. That would be a lot cheaper than using a financial advisor.

 

[davebarnes]

For retiring next spring at age 59? Why?

I don’t see where your link suggests lower bond allocation.

Two unrelated items.

 

[DrRoy]

I would consolidate at Fidelity, and DIY. I did just that myself.

 

[Ronstar]

I would put it in one pile at Vanguard. Call Vanguard, talk to an advisor and explain your situation. They should be able to pick out an investment mix to suit your needs. And they will handle the $ move.

That's essentially what I did. But DW has hers with an FA, and I put about 30% of mine with the same FA.

Assuming all things equal, you should be able to beat an FA's investment mix by about 1% if you manage your portfolio DIY.

 

[Dtail]

I would consolidate at Fidelity, and DIY. I did just that myself.

+1 same here, plus you can join the Private Client group at Fidelity and can receive some investment assistance at no cost.

 

[mystang52]

The difference between "doing it perfectly" and fumbling through it in an obviously incorrect was is less than it costs to pay an advisor under almost any "AOM" scheme.

In other words, you DIYing it "wrong" would put you ahead of paying X% per annum on assets under management.

If you are at all inclined to play with it, you can get your distributions optimized, or at least pretty darn good. It's not rocket science. You generally spend after tax first, and many people will do Roth conversions to fill up low marginal tax brackets. By the time your after tax runs low, you'll be an old hand at it, and it won't seem at all daunting.....

This is great advice. Notwithstanding their advertising, there's no guarantee a paid FA firm will do any better, especially to cover their fee.

 

[pb4uski]

.... A big concern I have with DIY retirement investing is, how do you know which account to draw from to minimize your tax liability? If I turned it all over to a FA, they would be able to help with this. Thank you for the input and advise!

An FA isn't going to be able to help you decide where to draw to minimize taxes. The other issue is where you say minimize taxes.... do you mean current year taxes or long run taxes.

For example, I could easily make my tax liability nil for the current year, but I would pay more taxes in the long run.... so I do low tax cost Roth conversions to reduce future RMDs and over the last 6 years have paid about 9% now vs 22% or more later.

On your question, why not consolidate everything at Fido and self manage? A broad based US equity ETF, international ETF and bond ETF would probably perform similar to your proposed portfolio with much less complexity.

 

[LRDave]

+1 same here, plus you can join the Private Client group at Fidelity and can receive some investment assistance at no cost.

+2 I don't think Vanguard is going to offer you any more than Fido.

 

[mrfeh]

So I guess my questions are, does it make sense to do this? Is this basically what others are doing?

A big concern I have with DIY retirement investing is, how do you know which account to draw from to minimize your tax liability? If I turned it all over to a FA, they would be able to help with this. Thank you for the input and advise!

Do it yourself. It's not difficult, and infinitely better than paying others 5 figures a year.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[Rianne]

OP, do you know how much you've paid in expenses? When we first started investing with FA many expenses were hidden. Listening to Bob Brinker when we were newbies to investing taught us a lot. His advice guided us to DIY with Vanguard and that's where we've been for 20+ years in diverse mutual funds. We're 60/35/5. Vanguard and Fidelity will assist at no cost.

 

[Bryan Barnfellow]

You have started with the correct first step: you are asking a very knowledgeable and helpful group for assistance and suggestions for next steps. Best of luck going forward.

-BB

 

[target2019]

I'm 59 and hoping to retire next spring. I have about 2.3m, but it's spread out in three piles and I want to consolidate it into one big pile and am trying to figure out if I should DIY or turn it all over to a FA. I've opened an account with M1 Finance (anyone else using this online brokerage?) and what I am considering doing is to create a pie made up of Vangaurd ETFs something like this:

(snipped your tables for brevity)

Right now, I'm paying Fidelity to manage my IRA and some of the other money, and of course I'm paying Ed Jones. I was thinking I would close out my Ed Jones money and move my IRA into the pie above and my ROTHs into a similar pie. I think I'm paying Fidelity about .83% and I don't even know what I'm paying EJ, but I know it ain't cheap.

So I guess my questions are, does it make sense to do this? Is this basically what others are doing?

A big concern I have with DIY retirement investing is, how do you know which account to draw from to minimize your tax liability? If I turned it all over to a FA, they would be able to help with this. Thank you for the input and advise!

There are many ways you could travel. As you follow this thread and comment on advice given, you'll see there are many individual approaches to withdrawals.

Others do this, and as you can tell there are opinions about your choices. There will be many more if you continue to participate in the thread.

The big three institutions are Vanguard, Fidelity and Schwab. Having two go-to financial caretakers might be a better approach. You could 1) take Fidelity off the management structure, and 2) transfer the Eddie money (see what I did there?) to Fidelity.

If you list all of your details on the left side of a spreadsheet, and have transition columns on the right, you can noodle with the arrangement and allocations.

I know little about M1 finance. The reason I mention the big three, is because they will all be in business for a long time. This will cover the time period that includes the passing of both account holders. Some (like me) are adding Schwab to the mostly-Vanguard mix we had. When my survivor(s) need help, they will get it from Schwab. They also will have a number of years talking with me about "things" and what they'll go through.

Most responses, just like mine, eventually result in advice similar to "this is what I do, and it would work for you. On a DIY path though, you have to eventually concede that this will be of your own doing, with difficult choices at times. But it helps to have a complete plan of transition, or you could end up in a corner with your taxable gains, for instance.

So you have a large project and can break it down into smaller tasks that get done as quick as possible, and then you're on to the next activity.

 

[pb4uski]

Most people would transfer their 401k money to their traditional IRA.

Before you do that, see if your 401k plan has a stable value fund and if so, what it is currently paying and has paid in the past. IF your 401k offers a stable value fund that provides a good interest rate, you would want to keep it as you can't get a stable value fund that pays a decent interest rate in an IRA.

In fact, IF your 401k offers a stable value fund that provides a good interest rate, you might want to transfer money from your IRA to the 401k to take full advantage of it.

 

[anony mouse]

Great advice already given, and here's a tidbit from my own experience of ditching my FA:

It can take a while to get comfortable with DIY, and knowledge is a powerful help. So invest some time in learning and reading.

For me, it was also helpful to play with a bunch of different options for conversions and AA at i-orp. I needed that to help wrap my brain around it. Use the extended i-orp :
https://www.i-orp.com/EmptyRow/Extended.html

Lastly, when you learn some things, and play with some of the online tools like i-orp, you'll start to form some strategies for avoiding taxes , start documenting your thoughts. DIY is less daunting with the long term plan documented.

 

[Crnhzkr]

Thanks all. I definitely appreciate the candid advice. I'm a bit surprised nobody mentioned using M1 Finance. M1 an online brokerage, similar to Etrade, but what makes them unique is instead of buying and selling individual securities, you create a 'pie' that is made up of as many securities as you like and can be made up of individual stocks, mutuals or ETFs. You allocate a percentage to each to total 100%. When you fund your pie, it automatically allocates your deposit across the pie and does the same for distributions. You can reallocate as often as you like with the click of a mouse. It just seemed to me to be an ideal solution for managing IRAs.

The FAs I've spoken to indicate the biggest reason to pay for their services is that they will assist with distributions to help reduce the overall tax burden. I know traditional wisdom says to take from taxable accounts first, then trad IRA, then ROTH, but that's a rule of thumb. The correct answer is surely a combination of those, and how does one determine the correct mix?

 

[obsessed]

Thanks all. I definitely appreciate the candid advice. I'm a bit surprised nobody mentioned using M1 Finance. M1 an online brokerage, similar to Etrade, but what makes them unique is instead of buying and selling individual securities, you create a 'pie' that is made up of as many securities as you like and can be made up of individual stocks, mutuals or ETFs. You allocate a percentage to each to total 100%. When you fund your pie, it automatically allocates your deposit across the pie and does the same for distributions. You can reallocate as often as you like with the click of a mouse. It just seemed to me to be an ideal solution for managing IRAs.

Never heard of M1 Finance so I looked them up. They seem relatively small and focused on young investors. Total invested assets of less than $2b and 150,000 customers or about $13k per. I would be much more comfortable using one of the big three.

 

[target2019]

Thanks all. I definitely appreciate the candid advice. I'm a bit surprised nobody mentioned using M1 Finance. M1 an online brokerage, similar to Etrade, but what makes them unique is instead of buying and selling individual securities, you create a 'pie' that is made up of as many securities as you like and can be made up of individual stocks, mutuals or ETFs. You allocate a percentage to each to total 100%. When you fund your pie, it automatically allocates your deposit across the pie and does the same for distributions. You can reallocate as often as you like with the click of a mouse. It just seemed to me to be an ideal solution for managing IRAs.

The FAs I've spoken to indicate the biggest reason to pay for their services is that they will assist with distributions to help reduce the overall tax burden. I know traditional wisdom says to take from taxable accounts first, then trad IRA, then ROTH, but that's a rule of thumb. The correct answer is surely a combination of those, and how does one determine the correct mix?

Schwab has stock slices too.

Unless you understand the tax implications for now and later, how do you know the FA is recommending an optimum strategy? That also applies to the asset allocation. You'll see a lot of charts and reports for sure.

But it is your decision. DIY or pay an FA.

Eddie is nailing you for 2% at least. Fidelity has you for about 1%. That my WAG. If you look at the cost for the next 25 years, it's significant for you.

 

[OldShooter]

Most people would transfer their 401k money to their traditional IRA.

Before you do that, see if your 401k plan has a stable value fund and if so, what it is currently paying and has paid in the past. IF your 401k offers a stable value fund that provides a good interest rate, you would want to keep it as you can't get a stable value fund that pays a decent interest rate in an IRA.

In fact, IF your 401k offers a stable value fund that provides a good interest rate, you might want to transfer money from your IRA to the 401k to take full advantage of it.

One caution: Some 401Ks have annual participant fees. I have seen them as high as 1.5%. Make sure there are no such fees from your 401K custodian or the advantage @pb4 sees with the stable value fund might be blown away.

Second Topic: I don't think anyone has commented on the relatively complex fund mix you proposed. The most common thing I see with that type of approach is that the complexity provides no benefit and that is roughly true of yours. I did a PortfolioVisualizer run comparing your equity funds to a much simpler portfolio:

​

As you can see, for the first five years of the run, your complex portfolio essentially mirrors the simple one. Then for the last three years the complex portfolio falls behind. This is probably because the complex portfolio underweights large caps.

My point here is simply that complexity is not necessarily rewarded. In fact, usually it is not. So it is worthwhile to backtest and see what the portfolio would have done in the past compared to a simpler one. Maybe you want to underweight large caps. Nothing wrong with that if that's your choice, but adding some of a "not-the-S&P500-fund" (Fidelity has one I know; there are probably others) to the simple two-fund portfolio will probably take you where you want to go with only three funds.

 

[copyright1997reloaded]

Others have already commented on fund mix, asset allocation, expenses, etc.

I would only add to this to be careful with your taxable accounts. You have close to $500K in taxable accounts - any planning you do should include careful analysis regarding tax consequences of selling holdings (even if to acquire similar holdings).

This doesn't prevent you from combining accounts - just make sure the securities are transferred "in kind" from the source account to the destination.