A Year Into Early Retirement; Still More Questions than Solutions

[boss61]

Hello. We're new here and retired a little early in mid 2022 (I'm in my early 60s and my wife is in her late 50s). Selling a business and a modest inheritance combined to support this leap of faith. Technically I'm semi-retired, though not working more than a handful of hours a week. I consider myself retired for the sake of the financial considerations now here for us.

Our kids are grown and flown and our home is paid for, and we can retire-in-place if we so choose (its a rancher - the luck of accidental fortuitious planning). We have a little over $1M in liquid assets, not counting the house and ideally, we'd hope to leave some to our kids (and future, potential grandchildren) at the end. I elected early social security based on lack of family longevity; my health is excellent at the moment.

We'd like to travel while our comparative youth and health still allows; we did not do so much in our working years but we have some in the last year and change. (Do see the French Riviera if you can!). In addition to travel, we spent the last year figuring out our monthly budget; this took a while but e think we have a handle.

Initially we placed ourselves in the care of a fiduciary-based independent financial planning firm, and we had an introductiory deal to access their expertise (long story related to the sale of our business). We're approaching the end of that deal and now going forward, they want 1% per year of assets-under-managemet to continue as their hands-on client with bimonthly or quarterly check-ins.

Not fully trusting their service yet, and not wanting to get fully entangled until we were sure we were happy in the long term, we gave them control of our non-401k resources (about a third), but kept our 401K moneys (about two thirds) under our independent management through T. Rowe Price in "balanced" retirement funds, tempered by their independent suggestions now and then.

We think the firm is knowledgeable, and we seem none the worse for wear from having transitioned from one person to another because of a resignation there. Still, what they want is to manage it all, for 1% per year, and stuck in my craw is that it seems expensive for someone to merely tell us which asset we need to liquidate when to fund our retirement lifestyles. I've done the math on 1% per year and it ain't pretty.

Ideally we'd find an hourly, fee-only fiduciary who truly would place our interests ahead of revenues and profits for the firm. Other than internet blind-man's-bluff (reading web sites and guessing), the relationship we seek seems elusive unless you happen to get lucky. Very ideally we'd leverage the guys we are with to accept an hourly arrangement; we like them other than the cost.

Has anyone developed a list of key screening questions that have worked to identify an hourly, fee-only fiduciary who places professional ethics ahead of revenue, profit and (I'll say it) greed? I'd love to know how folks screened for such services, as we cannot be the only people in search of this. Thanks.

 

[REWahoo]

You will find that the skills and knowledge you need to be sure a financial advisor is doing a good job for you is almost exactly what you need to know to manage your investments yourself. Most of us here do exactly that - manage our own investments. You can do the same as it is far easier than managing your own business. It really isn't rocket science.

 

[ncbill]

Pay for access to this database:


Advice-Only Directory


"Advice-Only Directory
I’m not an advisor. I keep up to date a directory of financial advisors who give advice but don’t manage investments (sorry, only in the U.S.).

Financial advisors who operate under the straight-and-narrow Advice-Only model are the true gems. Most advisors go after the holy grail of selling you products for commissions or managing your money for a large recurring fee year after year. Many other advisors offer services billed hourly or by project only as a hook for “full service” investment management. This leaves a tiny percentage of advisors who offer good honest Advice-Only services.

Advice-Only Advisors
I scoured the Internet for four years for Advice-Only advisors (and I continue to do so today). I found about 100 advisors who meet these Advice-Only criteria:

The advisor’s firm is a Registered Investment Adviser (RIA) registered with the SEC or at the state level.
The advisor acts as a fiduciary and puts your interest first.
The advisor has a Certified Financial Planner (CFP®) certification, other professional credentials, or equivalent experience.
The advisor does NOT sell products that pay the advisor a commission (cash-value life insurance, annuities, load funds, individual muni bonds, non-traded REITs, limited partnerships)
The advisor does NOT offer to manage your money for a recurring fee either as a percentage of your asset value or on a monthly or annual retainer.
Charging a recurring fee for financial planning is OK.
The advisor does NOT, for revenue sharing or markup, refer you to someone else who will manage your money for a recurring fee.
Recommending unaffiliated financial institutions is OK.
The advisor strictly offers his or her advice for a fee. The advisor treats you as a competent adult able to follow the advice.
Assistance in opening accounts or filling out forms is OK. Accepting prepayment for follow-ups or incidental questions that come up is OK."

 

[Out-to-Lunch]

Welcome to the forum!

I think if you can run a business, you likely can manage your finances.

 

[Stormy Kromer]

Welcome to the forum!

I think if you can run a business, you likely can manage your finances.

Best line I have ever seen on this forum. As a retired business owner I agree. Please don't pay someone $10,000 a year for what you can do for $10 bucks at Vanguard.

Invest what you need each year in their cash fund (paying 5%) and the rest in your favorite type of index fund such as SP 500 or Total Stock Index. Please don't pay a FA 1% a year to put you into an artificially confusing mix of funds with interior fees of another 1%. I've been there. You can do it.

 

[COcheesehead]

As a retired business owner myself, trust me when I say you can manage your own.

 

[perez99]

Welcome to the forum!

I think if you can run a business, you likely can manage your finances.

+1

 

[HI Bill]

Just go with the Boglehead's three-fund portfolio, and self-manage. You'll do just fine (and likely better with lower fees than paying an advisor).

 

[Exchme]

When I was at peak income and working my tail off, we got an advisor. Four years later we had many financial scars to show for it. The market nearly doubled while we were up less than 20%, funds had very high operating costs on top of the fees, making the total take closer to 2%, the funds were very tax inefficient, so we actually paid thousands in AMT one year. By then, we were wiser and fired him. Run the math, even 1% for a 30 year retirement is devastating.

You will do better than the vast majority by just holding a simple Boglehead 3 fund portfolio (Total Stock Market, Total Bond Market and Total International). Pick your favorite stock allocation, decide on if and how much international to hold and voila, you have a portfolio. It really couldn't be simpler.

Historically, you've been able to safely withdraw a bit less than 4%/yr from a portfolio and have it last 30 years. So this advisor would be snatching a quarter of your safe withdrawal rate and they would still not one whit more about the future of the market than you do. In fact, none of us know anything that will help us outsmart everyone else, which is why the Total Market approach is so powerful, the current market capitalization is the sum of all knowledge, educated opinions and wild guesses about what will perform best in the future, so it's the best portfolio for normal investors.

 

[boss61]

Boglehead Three Fund Portfolio Suggestion

Many thanks for this and related suggestion. I gots me some reading to do! And I need to bring my better-half into the discussion, as in the final analysis like with many things we do, its a partnership and I'm out here doing the derring-do of research.

 

[target2019]

For the 1/3 managed, what are the investments? Since it's a taxable account you'll need to be careful.

 

[boss61]

Right now, the financial planning firm has hand-selected a group of funds at Scwab, too numerous to list here. If we leave them as I am leaning toward, we'll wrest control of that back. Previously, these $$$ had been in "Retirement 2020" and the like at T Rowe Price.

 

[DrRoy]

Right now, the financial planning firm has hand-selected a group of funds at Scwab, too numerous to list here. If we leave them as I am leaning toward, we'll wrest control of that back. Previously, these $$$ had been in "Retirement 2020" and the like at T Rowe Price.

Under NO CIRCUMSTANCES should you allow any of your investments to owe a % of assets fee. At a 4% WR, that would be 1/4 of your spendables per year. No way.

Suggesting investments that are too numerous to list is another sign of mismanagement.

 

[target2019]

Right now, the financial planning firm has hand-selected a group of funds at Scwab, too numerous to list here. If we leave them as I am leaning toward, we'll wrest control of that back. Previously, these $$$ had been in "Retirement 2020" and the like at T Rowe Price.

Ok. So, to be clear, you're invested at Schwab, in Schwab funds now, or you have TRP funds?

Some investors manage the entire portfolio as one portfolio. So, as a DIY investor you'd consider all accounts, and select funds appropriate to your goal(s).

If the advisor is suggesting a list of funds too numerous to list, that is not really desirable.

 

[Midpack]

In line with what others have said, my favorite related adage - by the time you know enough about investing to choose a financial advisor, you won’t need one…

While some people may be better off with a full cost advisor, 1% AUM is outrageous though not uncommon. Over a 30 year retirement…

Let's now assume we pay an advisor 1% of our investments for their services. That's a standard fee in the industry, although you can find less expensive and more expensive advisors. The result is that on an after fee basis, our returns drop from 9.7% to 8.7%. The result is a portfolio of just $4.3 million. The one percent fee cost us about $1.5 million, or 25% of our wealth.

https://www.forbes.com/sites/robert...ee-can-wreck-your-retirement/?sh=1b336c554611

 

[OldShooter]

Welcome to the forum!

I think if you can run a business, you likely can manage your finances.

Yup. BTDT I am approaching the 20th anniversary of my retirement and have more money than I started with.

Right now, the financial planning firm has hand-selected a group of funds at Scwab, too numerous to list here. ...

This is classic client management. Put the client into a bewildering array of funds, which makes him believe investing is complicated and he must hire investment priests and witches to oversee the pot. Three or four years ago I undertook to get organized and I boiled our investments down to the point where 95% of our equity money is in one fund, VTWAX. We own basically every stock in the world. VTWAX may not suit you, but you should be headed to no more than two or three equity funds. Never, NEVER "too numerous to list."

There are two fallacies that the investment industry wants us to believe:

1) There are investment managers who can consistently beat the markets.
2) Past results predict future performance.

Neither of these is true.

Somebody mentioned bogelheads. That's a source for good information but I find it to be a little overwhelming. Here are some books you should read. Your DW should at least read Bill Schultheis.

"The Coffee House Investor" by Bill Schultheis https://www.amazon.com/Coffeehouse-Investor-Wealth-Ignore-Street/dp/159184584X (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

"Winning the Loser's Game" by Charles Ellis https://www.amazon.com/Winning-Losers-Game-Strategies-Successful-dp-1264258461/dp/1264258461 (latest edition, May 2021)
​

Regarding your point about fees, here is a slide I use in my Adult-Ed investing class:

 

[Aerides]

There are two fallacies that the investment industry wants us to believe:

1) There are investment managers who can consistently beat the markets.
2) Past results predict future performance.

Neither of these is true.

One thing that sends my eyes-rolling:

3) We have a great models/algorithm that can make the best recommendations for you.

 

[GraniteMike]

Hi - Agree with most on this. 1%+ to manage your assets is overkill and the 4% withdrawal recommendation is outdated and inaccurate.

Firstly, take your estimated retirement needs and subtract your fixed income (Pension, SS). This will give you some direction as to how conservative/aggressive you can be with your investments to provide an income stream for retirement.

Secondly, keep in mind that you can get 5% on your cash right now so $1,000,000 of principal will provide an easy $50K per year without touching the principal. There are also some closed end bond funds and ETF's that pay anywhere from 8-12% currently or $80K-$120K annually, again without touching the principal. Many stocks provide growing dividend streams to increase your income over the years and pay 4%+ annually, once more not touching principal.

I combine all of the above to juice the retirement income and to increase the income over the future and am currently averaging about 7% on my retirement funds. My bond funds with not grow much and nor will the income from those but my stocks and their related dividends will. I am living on SS, a teachers pension and dividends.

Hopefully a fee-only advisor will assist but be wary of them as well. I interviewed four advisors and they seem more like salespeople than advisors.

My brother in law just pulled his money from Fisher as he realized they just tracked the S&P all these years for 1.5%!!!

 

[boss61]

The drawing board awaits our return...

Many thanks to everyone for your thoughtful insights and perspectives. I'm not sure I'm ready to own the differential tax consequences aspects of selective liquidation, but I know for darned sure that we ain't paying anyone no 1% per year. We worked too hard to amass this to burn through it willy-nilly like that.

Searching for that happy medium - we'll find it the day after Jimmy Buffet finds his love shaker of salt, maybe?

Thanks again!

 

[TheWizard]

...My brother in law just pulled his money from Fisher as he realized they just tracked the S&P all these years for 1.5%!!!

Well heck.
If your BIL and others pull all their money from Fisher Investments, how will they be able to pay for all those TV ads?

 

[OldShooter]

... I'm not sure I'm ready to own the differential tax consequences aspects of selective liquidation ...

Huh?

 

[boss61]

What I feel I do not yet know - tax consequences...

Let me rephrase it this way. We're going to be living off of our accumulated savings. Those savings now exist in different funds and accounts, with different strategies, tax statuses and implications for withdrawal, early or otherwise.

Broadly I understand that there can be a right way and a less advantageous way to draw down on those assets, taxwise. Maybe selling some at a loss offsets gains elsewhere. Maybe a lot of things.

In this newish world for us, where we can no longer exclusively rely on present income to meet expenses, slowly we're be liquidating some of our holdings. I do not think I'm ready to own the challenge of doing so with crystal clear brilliance in terms of the tax consequences. Hence, an advisor of sorts still may be needed.

Make sense?

 

[OldShooter]

... Make sense?

Yup.

One thing to be aware of: In the industry, "fee only" is used to refer to advisors who do not collect commissions. The category includes the few advisors who charge by the project or per consultation, but it also includes the multitude who charge based on the client's assets ("AUM"). So when you're searching for an advisor screening for "fee only" isn't really a tight enough criterion.

 

[HI Bill]

Make sense?

Makes perfect sense. Once you go from accumulation to the decumulation phase, tax planning is very important. Some folks try to set up hard and fast rules. I just try to 'sell high', as close to the first of the year as possible, with the aim of selling enough assets in January that I don't have to worry about the market's undulations throughout the year. This can cost you $ in a bull market, though. I use IRSCalculators to determine my tax liability based on my earnings and withdrawal strategy (https://www.irscalculators.com/tax-calculator).

I'm not sure you're going to find anyone who's great at helping you with a tax and maximization strategy without paying a hefty fee. I've created my own spreadsheet that I use to calculate my taxes each year. It's within a couple hundred $ of the website referenced above. I also have a separate spreadsheet that shows taxes, planned income and withdrawals for each year in my retirement. Looking forward to key dates like the start of tax-deferred withdrawals at 59.5, RMDs, SS, Medicare, etc., can help you decide what to sell when (when I looked forward to the RMD age minimum expected income (SS, RMDs, Dividends), I decided it's better to balance my taxable account sales now, with some tax-deferred withdrawals, as I'll likely end ending up in the 22%+ federal tax bracket when I have to take RMDs, SS, and other distributions. Better to pay a slightly higher rate now, and save some of those brokerage investments for later....it's an art, not a science, as no one knows future tax rates nor returns.

 

[ncbill]

Yup.

One thing to be aware of: In the industry, "fee only" is used to refer to advisors who do not collect commissions. The category includes the few advisors who charge by the project or per consultation, but it also includes the multitude who charge based on the client's assets ("AUM"). So when you're searching for an advisor screening for "fee only" isn't really a tight enough criterion.

Which is why I posted what I did.

None of those screened RIA advisors charge AUM fees.