A Year Into Early Retirement; Still More Questions than Solutions

I have been working on similar issues, cleaning up my investments and getting organized with a clear strategy of how to handle things. On a recommendation from a friend, I spoke to an advisor from Fidelity (in the local office). I have had an account with them for a long time, but also with Interactive, Schwab, Vanguard, Merrill, and quite a few banks. Fidelity has a range of options for advisors. One of the things he asked was did I want to self manage or wanted them to manage. I stayed with self manage, but with him helping guide me on setup, etc. He is always available and helped me a lot. Fidelity has many low cost funds that can match vanguard and others. Or just use ETF's and do whatever you want. He didnt try to sell me any expensive products, unless I asked. So now I am self managed, but have access to Fidelity's advisors at no cost. Just an option.
 
The OP is concerned about developing a decumulation strategy with an eye to income taxes.
Best way to do this is with a personalized spreadsheet which projects your various income streams year by year though your mid 70s, with AGI and taxable income projections as well.

Often, such a plan will have you doing Roth conversions in your early retirement years to reduce the size of your RMDs later on.

It's best if you have the skills to develop this personalized spreadsheet yourself. It doesn't have to be perfect to begin with and you need to update it at least annually with current numbers.

Generally, it's best to arrange your finances so that you have gradually increasing AGI and taxes from one year to the next, with no large jump after starting SS and RMDs.
Previously mentioned Roth conversions are the key to doing this...
 
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Well the issue IMO is even if you get an advisor it's crucial you know all the nuts and bolts of these issues yourself...


Start studying and reading and educate yourself.
 
Yes, lots of learn

The education of this thread has inspired the need for more education and thanks.
 
boss61 said:
The education of this thread has inspired the need for more education and thanks.
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You'll do fine. I would be in somewhat of a hurry to ditch that AUM advisor but once that is done you should not be in a hurry to make things happen. Read, think, ... repeat.

If you hurry and screw up you will remember it forever and it may hurt your net worth forever. If you are patient and make the right moves, you will never remember exactly how long you spent getting educated.
 
boss61 said:
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.
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The "too numerous to list here" is a HUGE red flag for a $1m portfolio. It doesn't need to be that complex. What is your overall asset allocation target?

For a $1m portfolio one or two equity funds and a rolling brokered CD ladder in the tax-deferred account would be fine and very easy to manage and very tax-efficient.
 
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TheWizard said:
The OP is concerned about developing a decumulation strategy with an eye to income taxes.
Best way to do this is with a personalized spreadsheet which projects your various income streams year by year though your mid 70s, with AGI and taxable income projections as well.

Often, such a plan will have you doing Roth conversions in your early retirement years to reduce the size of your RMDs later on.

It's best if you have the skills to develop this personalized spreadsheet yourself. It doesn't have to be perfect to begin with and you need to update it at least annually with current numbers.

Generally, it's best to arrange your finances so that you have gradually increasing AGI and taxes from one year to the next, with no large jump after starting SS and RMDs.
Previously mentioned Roth conversions are the key to doing this...
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+1 OP would be best off to study, learn and develop a plan himself. From what he wrote his principal sources of income are future SS and income from taxable accounts. In 2024 he could have as much as $123,250 of qualified dividends and long term capital gains (or better yet $29,200 of ordinary income and $94,050 of qualified dividends and long-term capital gains) and still pay $0 in federal income taxes!

So the OP has a great opportunity for either harvesting the taxable portfolio and/or no/low cost Roth conversions for many years given he is so young.

And IME an investment advisor is unlikely to be conversant enough in these issues to develop a good plan.

https://www.irscalculators.com/tax-calculator
 
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boss61 said:
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. ...
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You can't start SS until you are 62 so do you mean that you plan to elect early SS?
 
I too have been debating this question of whether or not I need an advisor in retirement. I've had an AUM advisor for 20 years now, generally ok with their investment strategy. Where they really earned their keep as been in helping us through various family situations, such as managing finances for aging parents, and later, managing the financial complexities of closing an estate. We've been paying a little less than 1%, with a bit over $2.5M under management (supposedly they are charging new clients close to 2% so we're getting a "bargain"). I get pretty incensed thinking about how much we've paid in fees over the years, but one key reason we've had an advisor during the accumulation phase was" (1) I wasn't always as knowledgeable as I am today, (2) Having a 3rd party advising us avoided a lot of marital tension, and (3) My focus has been on making the money, would not have had time or energy to think about investing a portfolio.

[When I retire] I will have time (but is this how I want to spend that time). And now, I know a could self-manage pretty effectively. Only reason to keep paying fees at this point is having someone who could help DW in case I meet an early demise, and help us with some of our tax-related questions (ex. Roth conversions).
 
I've posted my strategy on the forums and have gotten COMPLETLY flamed. Attached is a document that I've adopted. Not sure where you are in your financial journey but my monthly dividends entirely cover my monthly expenses. I retired at 54 and will never have to touch my principle in perpetuity. I have had 3 different FAs tell me I'm crazy but they all want a piece of my money. No thanks. Feel free to respond if this of interest. I tried to PM you but the system would not allow me attach the doc.
 

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boss61 said:
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?
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Most financial advisors are either investment advisors or insurance salespeople. Neither category is knowledgeable on taxes, generally speaking. Frequently they will tell you to consult your tax professional if tax topics arise.

Even somewhat less than crystal clear brilliance on your part will likely perform better than paying an advisor. Start with common sense, add some education, and you'll probably learn along the way quickly enough to do well enough to easily beat the advisor fees.

Usually it turns out that one option is so obviously better that you can choose it confidently, or several options are approximately equal so it becomes a matter of personal preference with no serious negative consequences.

The two exceptions I can think of: (1) your spouse can't go along with DIY, or (b) you understand the IMHO exorbitant cost and are still happy to delegate it.
 
REWahoo said:
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.
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I was about to say the same thing. :)
 
GraniteMike said:
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%!!!
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So they didn't. They tracked the SP500 - 1.5%

The fact that you're being advised to use "too many funds to list here" is a major red flag. You probably don't need more than 3.
VSMGX is a single fund that implements the Boglehead 3-fund portfolio fokio unless you have strong ideas why you want a different AA or a different foreign stock allocation, in which case mix VTI, VXUS and BND to your desired mix.

I don't know the Schwab equivalent off hand but they do have cheap index fund equivalent
 
BlueberryPie said:
So they didn't. They tracked the SP500 - 1.5%
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I don't have any money with Fisher and have no idea what they put his money in but I would bet my entire networth that they do not "just track the SP500". I looked and they manage $205,000,000,000 for 140,000 clients.

FWIW, I pay 0.98% gross expense on my 2nd largest holding. They are up 117.5% YTD. I would gladly pay double the expense on that fund if they could get me double the return.
 
rmcelwee said:
I don't have any money with Fisher and have no idea what they put his money in but I would bet my entire networth that they do not "just track the SP500". I looked and they manage $205,000,000,000 for 140,000 clients.

FWIW, I pay 0.98% gross expense on my 2nd largest holding. They are up 117.5% YTD. I would gladly pay double the expense on that fund if they could get me double the return.
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Reacting to GraniteMike who said his BIL's experience was that his returns "tracked" the SP500. I don't think he meant they invest in the SP500 for you, I think he meant their results were no better than a simple SP-500 index fund like VOO. I have no idea how Fisher is doing for their clients. I have read countless threads about Fisher's real return based on the $ in your accounts vs the numbers they publish in just the right light. I'm not a client of theirs, but I did talk to them at one time and when they showed me a chart showing their performance against SP-500, not only did they pick the perfect dates, but their numbers were dividends reinvested but before their fee, and the SP-500 were without invested dividends.
I decided I couldn't trust them.


I'm happy for you if you have someone truly beating the market after fee, just make sure they're not pulling a similar apple-to-oranges, and make sure the results are sustained over long periods. It's easy to be up 100% this year if you were down 200% last year :)
 
BlueberryPie said:
Reacting to GraniteMike who said his BIL's experience was that his returns "tracked" the SP500. I don't think he meant they invest in the SP500 for you, I think he meant their results were no better than a simple SP-500 index fund like VOO. I have no idea how Fisher is doing for their clients. I have read countless threads about Fisher's real return based on the $ in your accounts vs the numbers they publish in just the right light. I'm not a client of theirs, but I did talk to them at one time and when they showed me a chart showing their performance against SP-500, not only did they pick the perfect dates, but their numbers were dividends reinvested but before their fee, and the SP-500 were without invested dividends.
I decided I couldn't trust them.

I'm happy for you if you have someone truly beating the market after fee, just make sure they're not pulling a similar apple-to-oranges, and make sure the results are sustained over long periods. It's easy to be up 100% this year if you were down 200% last year :)
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This is the CPA grade, textbook answer of course. I come at it from three different principles:

1) The guys selling this stuff are smart and trying to catch their tricks will at best take a lot of work and at worst will fail.

2) Well over a half century of statistics has shown that 90+% of stock pickers fail to beat their benchmarks over the long term and, further, it is not possible to identify the lucky ones ahead of time.

3) If the salesperson believed what he is saying, that his company can beat the market, he would not be selling stuff. He would be relaxing by the pool on his yacht. Two possibilities exist. Either he has tried making money using the company's schemes and he has failed, or he is afraid to try.​

So ... no effort to pick stock pickers for me. It is doomed to fail.
 
boss61 said:
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.
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I'm just coming to this thread. Our experiences are very similar. I'm a business owner looking to sell soon and retire (my DW will say that line has been uttered for the last 3-4 year, LOL.) I have a bit more than you in liquid assets and will have a nice payday when I sell my business.

I was with Edward Jones for about 10 years until they wanted to impose an AUM fee on my IRAs. I learned about these fees when I saw my 1099 from them. The amount of money they were charging me was an eye-opener, to say the least. In other words, I feel your pain. I left them in 2017 and went to self-management of my portfolios at Fidelity.

As usual, the group hasn't really directly answered your questions (you get used to it) but I can't argue with the advice. You DO need to get away from AUM fee based advisors and you CAN manage your own portfolio. You really don't need a fee based advisor, but since you asked for some key screening questions, here goes...

Assuming you've determined they are a fiduciary advisor and not a financial planner:

1. Ask to see their written fee structure. Be sure they are truly a fee-only based advisor. Look for commission schedules, per transaction fees, etc.

2. Ask them what they think of the index funds vs. active management debate. Make sure this is an open ended question and not biased in any direction. Do they use index funds or are they involved in actively managed funds?

3. Ask them approximately how many transactions they make per year for someone in your situation. I know situations vary, but ask for a ballpark figure. Are these in taxable accounts or tax deferred accounts?

4. Ask them if they can advise on tax consequences related to retirement distributions (primarily) but also other tax situations.

That's a good start. Be leery of getting a lot of answers like, "It depends." Or, "I can't really say until I see your current portfolio." Every advisor has an underlying philosophy that they adhere to, and they should be able to articulate it without seeing your portfolio.

With all that said I will echo what others have said--if you can run a business, you can manage your own portfolios. I advise doing it yourself. I like Fidelity a lot (have had TD Ameritrade and Schwab, and Edward Jones.) Will you make some mistakes? Probably. But with a $10,000 savings on annual fees you have a lot of cushioning.
 
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FedRetired50 said:
Didn't see this in your post, can you repost? I understand the problem with fees, I'm just curious what you have to say.
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Hmm ... it shows on my screen, but here it is again:

38349-albums263-picture2892.jpg

If that still doesn't work, PM me an email address and I will send it direct.
 
I briefly worked with Facet Wealth and one of my learnings was that financial advisors are not CPAs, they're not estate lawyers either. While in retrospect that seems obvious, they advertised they had "360 approach" that included estate planning and tax planning.
Estate planning turned out to ask "do you have a will or trust" and refer me to a lawyer friend of theirs.
The didn't want to answer, or answered too simplistically, relatively simple tax questions about the impact of some of the transactions they were suggesting. For example, they moved my entire balance from one fund to another in taxable (a move that made sense based on the costs built into the fund).They made the move November rather than doing 1/2 in November and 1/2 in January to spread the taxes, and I ended paying an unnecesasry NIIT tax.

My point is make sure to get a CPA to help you deal with the sale of the business, not a financial accountant.
 
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boss61 said:
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?
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[FONT=&quot]I have not even tried. I believe there is no such thing, really. For-profit companies are for profit. And it makes little sense that selfless people would gravitate towards the financial industry :D[/FONT]

[FONT=&quot]If I were you, I would move those taxable-account assets into self-managed brokerage accounts at Vanguard and/or Fidelity (or equivalent firms, we have some money at Wells Fargo Advisors or whatever they're calling themselves now, because of a good deal they were offering when we opened those accounts).[/FONT]

[FONT=&quot]If I were starting fresh with just cash, I would choose a reasonable number of large (meaning lots of money in them) broad-based index ETFs reflecting my desired allocation between stocks, bonds, and settlement-fund cash.[/FONT]

[FONT=&quot]But for you it makes sense to take a bit of time to familiarize yourself with the assets you hold, since liquidating them now that you already own them would carry tax consequences. Try to make it a fun exercise in learning, both about investments and about how the capital gains, interest, and dividends they are likely to generate might affect your taxes.[/FONT]

[FONT=&quot]BTW, I favor ETFs over mutual funds mainly because you can place limit orders rather than being forced to accept the (unknown when you place your order) end-of-day price. This preference stems from the 2010 "flash crash," which admittedly didn't affect end-of-day prices but it seems to me that it could have if it had happened later in the day.[/FONT]

[FONT=&quot]Our current ETFs are all Vanguard products: VTI, VB, VEU, VPL, VWO (stock) and VCIT, VGIT, BND (bond). Fidelity also has a bunch of good ETFs, though. In case you didn't already know, you can generally hold Vanguard ETFs in a Fidelity brokerage account and vice-versa.[/FONT]

[FONT=&quot]Sorry for the long post![/FONT]
 
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I think hiring someone who will charge you a few thousand dollars to either review your plan or help you create it can be money well spent. Those people do not manage your money, so it's in their interest to make sure you are comfortable doing it on your own, so they should not overcomplicate anything.

That being said I've never USD such a service, although I just might as another pair of eyes when I'm ready to pull the trigger on the Big R

A good substitute that's free to try to head over the Bloglehead forum and posts portfolio review. you don't have to disclose exact dollars and the advice is generally very good.

I think MrMoneyMustache's forum also has something similar although I don't hang around there much. It may be more "am I ready to retire" than "help me simplify my investments".

One thing I would never do is hire a firm that requires me to move my investments to their brokerage rather than advise me how to work into mine (be it Fidelity, Vanguard or Schwab). Otherwise they can hold you hostage by making it difficult/expensive to transfer back to your preferred brokerage if you want to leave
Empower (Personal Capital) wanted me to do they when I interviewed them. And since they would have a basket of their own (possibly proprietary/undisclosed) securities in my taxable account, they said I would have to liquidate my assets with them, get a check and reinvest somewhere else if I left (I had to pull that info out of them). That would mean a big tax hit if you're with them for a while and try to leave
 
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