Need Conservative Retirement Investment Advice

[Hjelle1]

Hi,

This is my first post. I am hoping for some conservative retirement investment advice.

We are quite conservative and have no debt. I retired the end of 2009 and started taking Social Security at that time. Other than stock from the company I worked for, we have only invested in the stock market for brief periods and have felt very uncomfortable the entire time we were involved.

I have a fixed pension from the company I worked for as long as I live (about $28,700), my and my wife’s Social Security ($19,776 & $9,780), some income from a small Shaklee business ($2,000) and some rental income (barely breaking even) for a total of about $60,256.

Our annual expenses including health insurance, long term care insurance and taxes are about $52,000. Assuming 3% inflation and 4% return we should be able to live off our current income until age 70 or so when we have to start taking our IRA Minimum Required Distributions. Using the same inflation and return rates, my spreadsheet shows that we should be able to make it to at least age 95 even if I die early and my wife loses my pension.

Our total net worth is about $1,167,000 broken down as follows:
Primary Residence 15.2%
Rental Property 11.0%
CD’s (5 year ladder) 24.6%
MM and Checking 2.1%
IRA .8%
Employee Stock Ownership Plan (OTTR) 13.8%
Retirement Savings Plan (Wells Fargo Principal Preservation IRA) 29.7%
Cash Value of Life Insurance 2.7%

My understanding is that money in my company Retirement Savings Plan has to be withdrawn as a lump sum so it would be best to move the investments to a fund that is more IRA RMD friendly. We have been advised to move the stock to a brokerage account to give us much faster access should we decide to sell.

We have spoken to two investment advisors that we like personally. One advised doing the following with the Employee Stock Ownership Plan and the Retirement Savings Plan.

Auto Owners Fixed Annuity 18.5% of funds
Health Care Trust of America (REIT) 7.4%
Midland National Variable Annuity w/ Guaranteed Income Select 18.5%
Allianz Vision Annuity w/ Investment Protector 18.5%
Curian Capital w/ Dynamic Risk Advantage 29.5%
OTTR Stock 7.7%

An Edward Jones representative suggested the following for the Retirement Savings Plan money.

Mutual Funds
Smallcap World Fund CL A (SMCWX) 3.1% of funds
AMCAP Fund CL A (AMCPX) 5.7%
Capital Income Builder Fund (CAIBX) 5.7%
Capital World GRW & Inc Fund A (CWGIX) 3.1%
Investment Co of America FD A (AIVSX) 2.6%
Fixed Income
12 taxable fixed-income securities 48.1%
Variable Annuities
Lincoln Variable Annuity with Balanced Growth and Income 29.9%
Cash and Cash Alternatives
Money Market Fund Retirement Shares 2%

I am having a very difficult time getting comfortable with annuities of any kind. The total projected return on the Edward Jones proposal is only about .25% better than what we are currently getting with our 5 year CD ladder. I have no interest in spending time monitoring investments.

I am very tempted to call both investment advisors and ask what rates we could get if we moved our IRA, Retirement Savings Plan and Employee Stock Ownership Plan funds into CDs.

Any advice you could give us would be greatly appreciated.

Thank you very much.

 

[LOL!]

Both of these advisors would be transferring your money into their pockets. It's too bad that you didn't find a reputable advisor in the first 2 tries. I'd keep looking, but it may take 10 or 20 interviews. Otherwise, you have to go the do-it-yourself route or the pay-by-hour route (Garrett financial planning network) both of which will require you to learn something. Learning is not a bad idea though.

 

[haha]

I have no interest in spending time monitoring investments.

Something must be in the air. Another guy recently showed up and expressed this sentiment.

In a nutshell, there aren't many things you can do if you have no interest in bettering your understanding.

Ha

 

[travelover]

You'd really be better off at Vanguard with a hands off income fund like Wellesley and/or Wellington. Vanguard can also provide advice for a nominal fee.

And yes, you owe it to yourself to do a little reading, if only to set yourself on the right track.

http://www.bogleheads.org/readbooks.htm

 

[RonBoyd]

In a nutshell, there aren't many things you can do if you have no interest in bettering your understanding.

Another addition to my "Potential Signature Lines" list.

 

[chinaco]

If you do not understand the issues and solutions... educate yourself. That is the only way you are going to feel confident.

Go to your library and checkout some books on the subject.

Below is a link to a thread on Otar's book that many in this forum believe to be a good overview of popular options and what they mean. Right now it can be downloaded for free... all you have to do is invest some time to read it.



http://www.early-retirement.org/for...-the-retirement-myth-45922-7.html#post1015261

 

[brewer12345]

Hjelle1, I would strongly suggest that you take your sweet time in making changes to your existing asset allocation/plan. It sounds to me like you are pretty well set as-is, albeit perhaps overly exposed to inflation risk. I think you would be best served in being very careful in picking an advisor if you do not wish to monitor your investments yourself. Unfortunately, you ran into two advisors who recommended a blend of very expensive, overly complicated vehicles that are more about the sizzle than the steak. I think that you would do well to find a fee-only planner who you can be comfy with and who understands your goals and risk tolerance. A fee-only planner also gets paid via cash on the barrelhead, so there should be minimal conflicts of interest with respect to the investments they suggest.

 

[Ed_The_Gypsy]

Taking into account your feelings on risk and monitoring your investments, I would offer the following free advice:

option A: You would be better off doing your own CD ladder. You are comfortable with it and you don't have to pay someone else to do it. You can do it yourself at your bank, or if you want to buy CDs from more than one place (not a bad idea), in a Vanguard account. You are not going to make 4%, but you will be happier in all other respects. Commit 100% of your funds outside of your rental property. Diversification is outside of your comfort zone, so why do it?

[-]option B: Even a good single premium annuity (NOT a variable annuity) should be better than this. (Maybe. I am reluctant to say this. Annuities have risks of their own.) At least you would know what you are going to get and what it would cost and you would only pay a [-]crook[/-] commission once. By the way, Social Security is an annuity.[/-] No, I changed my mind.

option C: Follow travelover's advice.

Your advisers will bleed you white--slowly. It will be like boiling a frog. By the time you figure out what is going on, you will be cooked. You are perfectly capable of getting comparable rates of return on your own, as you have noted yourself--and you don't have to pay someone else to do it.

Interest rates are very low right now. At some time in the future (1 year? 10 years?) they can be expected to rise. Be prepared for this.

If we can persuade you to do a little self-education, you should find FIRECalc on this board and play with it. Make different assumptions and see what happens.

Failing to plan is planning to fail. Sad, but true.

 

[Tractor guy]

I don't know any of the funds or annuities recommended by the first advisor but annuities can and frequently are a horrible deal for the buyer. What's worse, once you buy them, you have to spend MORE money to sell them. Mel Lindauer (who's studied them for decades) has done a series on annuities for Forbes magazine. I suggest you read it before buying any. Here's the link to the first of 6 articles.
Annuities: Good, Bad Or Ugly? - Forbes.com

I personally don't like Edward Jones as a company. I dealt with them to settle my mother's estate. They were very nice, helpful people who lived very well off the fees that they collected for "managing" my mother's account. Most of the management consisted of sending her quarterly reports that suggested that she sell one fund and buy another so that they could collect more commissions. Over the years, Mom and Dad spent a lot of money with them for (IMOP) unneeded or bad advice.

In your case, the 5 funds that the Edward Jones advisor wants to put part of your retirement savings money into all have 5.75% front load (commission). Unless I did the math wrong, he's advising that you invest about $70000 in the 5 mutual funds he recommended. He's going to collect about $4000 in up front fees from you for just that part of the plan. Then he's going to collect about $500/year from that $70K. I'm guessing that the rest of the recommended investments are equally or more expensive so you'll be paying him about $8K initially and $1-2K/year.

In contrast, Vanguard has several good no load funds that have running costs (expense ratios) that are about 1/3 of the ones that Edward Jones is recommending. If you go with them you won't pay the $8K initially and your yearly costs will be 1/3 or less of Edward Jones. I don't know about you but I am willing to do a lot of reading and suffer the pains of decision making to save several thousand dollars.

The bogleheads forum has a good reading list for beginning investors in their Wiki reference posts. A link is here:
Bogleheads :: View topic - Books

If I were you, I'd do nothing until I've read a few books. I you have to do something, put most of your money in a 1 or 2 year CD while you learn and get confident in your ability to manage your own money. Your short term objective should be to not lose your money to salesmen, taxes, or market changes. Of the three, market changes are what you seem to be worrying about most but salesmen are the bigger risk.

 

[nun]

Firstly, DON'T DO ANYTHING NOW.

Take your time and read. Go over to bogleheads.org and scan their wiki and read their posts as well as those here.

After that consider putting you money in a number of Vanguard funds. Vanguard will give you advice given your circumstances and if you have a big enough sum it will be free. Or just use one of their online tools to come up with a conservative allocation.

If that rental property is "just breaking even" why don't you sell it. You'll have the capital to boost your portfolio and be rid of the hassle of being a landlord.
'

 

[walkinwood]

I agree with all who have said - don't do anything now - but take your time to learn about investments. There are good books listed in this forum & also the bogleheads.org forum.

The one thing I would consider moving quickly to CDs or something safe while you figure out your strategy is your Employee Stock. Having 13+% of your portfolio in a single company stock is risky.

All the best.

 

[LOL!]

Even the employer stock is something that you should not want to move fast with. The taxes you pay may depend on some arcane rules dealing with NUA and other stuff.

Unfortunately, their may be some benefits if one does things in the 2010 tax year. By waiting this late in the year, there is unneeded stress about all this.

C'est la vie.

 

[Hjelle1]

Thank you very much for the advice. I learned more here in a few hours here than we have learned in many months talking to investment advisors. I will read some of the books that you suggested before making a final decision.

How will we know when find a reputable advisor?

Nun suggested selling the rental property. We may do that, but have been hesitant because I grew up there and it has quite a bit of lake shore. Until recently the value has been increasing even though the rent we have been able to charge barely covers taxes and maintenance.

Thank you again!

 

[brewer12345]

I would start with the directory at www.napfa.org to look for an advisor. I would also suggest educating yourself at least "two books' worth" so you can tell if the person you are talking to is BSing you or not.

 

[REWahoo]

I would start with the directory at www.napfa.org to look for an advisor. I would also suggest educating yourself at least "two books' worth" so you can tell if the person you are talking to is BSing you or not.

+1

I learned more here in a few hours here than we have learned in many months talking to investment advisors.!

If you take brewer's very good advice you should be able to spot someone who may not be placing your financial well-being ahead of their own. You may also determine, as have many of us, investing isn't really rocket science and you can probably do better on your own than paying someone to do it for you.

 

[veremchuka]

wow you're about to be taken big time! i agree with the many folks that advise you to do nothing and read to educate yourself.

vanguard is a good company with many funds that you could use that cost next to nothing relatively speaking vs what these clowns will take you for in high load and high expense ratio funds! i hate annuities and with rates so low now they are even worse because of that.

i am concerned that you hold stock in 1 company, the risk is very high vs having that money in a mutual fund like total stock market index that invests in thousands of companies that are large, medium and small, growth and value all domestic.

a very simple portfolio would be total stock market index, total international stock market index and intermediate term treasury mutual funds at vanguard or use cds vs the itt fund. the target retirement fund is pretty conservative, look at it too. ditto the bogleheads website for a wealth of info.

if you can't handle this yourself then for 1% management fee plus very low expense ratio on their funds (they are all institutional class shares so they are about 7 basis points - 7/100ths of 1%) i'd contact rick edelman's company and let them do it for you. they are very diversified in their allocations (18 different asset classes) and generally have sound advice except when it come to having a mortgage, rick wants everyone to have a huge mortgage. personally i'd save the 1% but that's me not you.

good luck.