First time posting, long time reader

[dayhkr]

Wife (58)and I (60) retired first of Dec 25 after both spent 35 years in grocery retail. Up until about 10 years ago, I was DIY and I am still on the prowl for good advice and handle a funny money account to placate myself. I was ok with paying AUM at the time since they were only managing roughly 20%, but now that accounts are consolidated with the FA, it is a much larger $ amount. I feel confident enough to self manage but my wife has no real knowledge or interest in managing retirement withdrawals, hence playing and paying it safe. Looking for suggestions on how to proceed. Sorry for a long first post and not sure the best forum to pose this question.

 

[Koolau]

Welcome to the fourm

You will hear (here) that you CAN DIY! AND, guess what? You can.

I'll let others chime in.

In any case, we're glad you chose to join us.

 

[Winemaker]

Welcome to the Forum and congrats to your retirement.

Lots of information here, both old and new with a somilar situation as yours. It's really not brain surgery. Continue to set your goals, adjust accordingly and work the plan.

 

[TickTock]

Welcome and congrats on your retirement!

I suggest starting a thread in the Fire and Money forum. The more detail you give on your situation, the better the suggestions will be. But don't share anything you're not comfortable with sharing.

The majority here are DIY, and there are ways to set up a portfolio to accommodate a spouse who's not interested in managing it.

 

[MarieIG]

If you wife is nervous about the self management, you can initially try managing 1/2 (or less) of the portfolio, and also involve her, to the extent you can, with the management. You can also explain to your wife how much the AUM fee cuts into your withdrawal rate.

 

[Flyfish1]

Welcome!
Nice people here and as stated above most self manage - certainly not all.

As I'm sure you know fees matter and will make a significant cut in your portfolio over time.
To paraphrase a friend of mine , " Why do I need a financial advisor to invest in index funds, a monkey could do that!"

I understand that there is a comfort level having someone managing your funds. However, it will cost you in the long term and I would echo the comments above , maybe get comfortable managing a larger percentage yourself and then grow from there. Plus, you have time...you are retired.

 

[Koolau]

And if you're uncomfortable sharing your actual "numbers" you might feel more comfortable sharing percentages (Such as 10% in cash, 25% in bonds 65% in equities). And/or 25% in Roth IRAs 25% in tIRAs and 50% in taxable, etc.

 

[Dtail]

Welcome to our wonderful forum.
Yes, many people here including DIY for our investments. It can be scary at first, but ask away your concerns and over time you will most likely feel more comfortable.
As an example, people think well I can't be a professional like a surgeon, so how can I do the same work (or better) than financial professional let's say at Fidelity. It is a false equivalence, and you will see over time.

 

[street]

Yes, Welcome you will find any answer to any question you may have right here. Some great knowledge and honest advise is what you will find here.

I wish You both well in ER.

 

[OK EE]

One thing that might be a motivating factor. 1% doesn't sound like much until you think about it in terms of retirement budget. If you assume a standard 4% withdrawal, and your FA takes 1%, you're paying him 20% of your budget. That's what finally brought it home for me.

Having transitioned from having a CFP to not having one, I can tell you it's not that hard. There can be some nuances that might take a little research but for the most part you just need to worry about asset allocation, asset location, budget, and withdrawal strategy. There are guidelines that work for most people.

 

[engineernerd]

Welcome! Going out on a limb and assuming your question was more about spouse management than money management:

You need to get DW to understand "in her bones" how much the advisor's fee cuts into the income your portfolio can generate, and also that the advisor isn't generating pre-fee returns high enough to make up for the fee cost drag.

Bill Bengen published a paper identifying the "safe withdrawal rate" for a 30-year retirement as about 4%, meaning the first year you'd withdraw 4% of your portfolio, and then every year you would withdraw the same amount of purchasing power no matter what percent of your then-portfolio it was.

So a 1% FA fee every year would mean one-quarter of your income would go to the FA instead of going in your pocket.

Link to a pdf of Bill's paper: https://kyestates.com/wp-content/uploads/2015/02/Bengen1.pdf

Since you did consolidate midstream, you won't be able to do a simple comparison of account growth after the 10 years, you may have to look up or calculate returns year by year, for comparison to an alternate portfolio that you and DW would both find acceptable.

IMHO the best alternate portfolio to show someone like DW is the very simple one embedded in our favorite retirement calculator, FIRECalc (link at the top of the page here, next to "MEMBERS"). Absolutely anyone can invest in a total-market index fund or ETF like Vanguard's VTI (expense ratio 0.03%), plus a money market fund like VMFXX, and rebalance once a year to a pre-chosen percent in the stock fund.

If the FA has been generating more than their fee in excess returns compared to the FIRECalc "couch potato" portfolio, your problem is more difficult. It's probably because they have you in excessively risky choices, but that might be tough to explain to DW if the bottom hasn't actually dropped out yet.

If you haven't spent hours exploring all that FIRECalc has to offer (not everyone notices that it has 7 input tabs), I recommend it highly.

 

[dayhkr]

Thanks for the warm welcome so far! Just to clarify, doing AUM with our FA is for my wife's benefit. Since we just started retirement, I'm thinking we will do this first year with the FA and then I would take back over. That gives me 9 months to coach the wife on some basics and ensure we have a plan in place should something happen. Some have posted that there have been similar posts. I would be grateful if someone could provide a link or a place to start digging.

 

[dayhkr]

One thing that might be a motivating factor. 1% doesn't sound like much until you think about it in terms of retirement budget. If you assume a standard 4% withdrawal, and your FA takes 1%, you're paying him 20% of your budget. That's what finally brought it home for me.

Having transitioned from having a CFP to not having one, I can tell you it's not that hard. There can be some nuances that might take a little research but for the most part you just need to worry about asset allocation, asset location, budget, and withdrawal strategy. There are guidelines that work for most people.

The total amount that the fee represents is what is gnawing at me. As you and others have mentioned, perhaps I need to make DW aware of the true dollar cost and not just the percentage.

 

[Exchme]

I'm thinking we will do this first year with the FA and then I would take back over.

Glad you joined in the conversation!

Many FAs put you in proprietary funds that have to be liquidated when you leave and if they've gone up, you have taxes to pay on top of the tens of thousands in fees.

Since you can handle your portfolio, you don't need to pay tens of thousands of $/year to someone that doesn't know the future any more than anyone else does. Research repeatedly shows that index funds are very likely to beat active management. So don't play a losing game, even for a little while.

If you want a plain vanilla set of index funds, try Planvision, they cost about $400/yr, they give you access to eMoney and you set up the links to your accounts, they give you a basic plan and a consultation, they would be there in case your wife needs help. Even the Vanguard PAS costs only 0.3%, much cheaper than nearly any other AUM advisor.

If you need secure income for a few years until SS starts, consider building a TIPS ladder. You can roll the ladder if you don't need the cash or spend it down if you do. Tipsladder.com is easy to use and will ultimately tell you what CUSIP numbers to buy and how many to cover your income needs.

My wife wanted nothing to do with handling the money - until I had a heart issue (I'm better now) and that scared her into learning. The message got reinforced when a friend's husband passed suddenly leaving that poor lady with no idea of even where their money was, let alone how much there was or how to manage it. So I've worked with my wife to have her do deposits, withdrawals, gifts of shares to the kids, Roth Conversions, she paid taxes using an indirect rollover, took an RMD from an inherited IRA, rebalanced the portfolio, looked up the unrealized gains on shared, etc. She's made copious notes and every time we do anything, I make her do it for practice. She's now where she could function on her own if she had to. Maybe convince your wife that if she learns how to handle the money, you can blow the avoided fees on something really nice that you wouldn't otherwise consider.

 

[Out-to-Lunch]

Welcome aboard!

 

[timo007]

Welcome.

I am a strong believer of DIY. A financial advisor reached out and had a 1.6% AUM fee. Assuming a long-term 6% return, that would equate to over 25% of the returns going to the financial advisor. I invest mostly in very low-fee index funds. The financial advisor was going on about tax-loss harvesting, etc. etc.... I just could never see a financial advisor adding that much value versus the index fund.

Here is an tool from S&P Global on actively managed fund performance versus the index:

https://www.spglobal.com/spdji/en/research-insights/spiva/

Cheers,

Timo

 

[Koolau]

Thanks for the warm welcome so far! Just to clarify, doing AUM with our FA is for my wife's benefit. Since we just started retirement, I'm thinking we will do this first year with the FA and then I would take back over. That gives me 9 months to coach the wife on some basics and ensure we have a plan in place should something happen. Some have posted that there have been similar posts. I would be grateful if someone could provide a link or a place to start digging.

I've never been good with the "SEARCH" function on the Forum. But it's there. Perhaps an expert in its use can guide you or give you a few thread titles to peruse. Good luck.

 

[pb4uski]

It sounds like you have two things going on... investment management and withdrawal management and as DIYers we cover off both. What is your overall AA and placement?

Quite often FAs have clients in many more tickers than is really necessary, but the numerous tickers makes it seem that investment management is complex and beyond the capability of mere mortals so a FA is " needed". Hundreds of us here prove otherwise.

An interesting exercise might be to put your situation into FIRECalc paying special attention to the expense ratio input on the Portfolio tab. Then run maximum safe spending at 95% success on the Investigate tab. Then jot down the number. Then reduce the expense ratio by 1% and submit. The difference in safe spending with and without FA cost is how much having a FA is impacting what you can safely spend.

For sh!ts and giggles I ran it for the FIRECalc default assumptions with and without a 1% additional AUM fee and the impact on annual safe spending was 12.5%! $26,917 with 1% AUM fee vs $30,286 with default assumptions.

 

[OK EE]

I am a strong believer of DIY. A financial advisor reached out and had a 1.6% AUM fee. Assuming a long-term 6% return, that would equate to over 25% of the returns going to the financial advisor. I invest mostly in very low-fee index funds. The financial advisor was going on about tax-loss harvesting, etc. etc.... I just could never see a financial advisor adding that much value versus the index fund.

Right. Investment advise is not where CFPs (FAs) should earn their keep. Very few (less than 10%) can beat the market, and even less do so on a consistent basis.

Where they are useful is making sure your financial future is protected. That means making sure you have your estate documents prepared, that you are putting your dollars in the right places (Roth/401k/brokerage/HSA etc) and when retirement does roll around, strategizing withdrawal and Roth conversion strategies in light of ACA and IRMAA, and total taxes paid/RMD reductions.

It sounds complicated but it really isn't. Once you've built your nest egg, the hard part is done. There are tools and guidelines that help you navigate the other minutia.

To the OPs comment, I think keeping an FA on hand for the first year isn't a bad idea. It will highlight what you know and what you don't. If you're like me and you keep studying the ideas behind retirement finances, you will eventually get to the point of "yep, I know, Bob. Why am I still paying you?"

 

[engineernerd]

The biggest potential downside of giving a FA access to funds you have in taxable accounts is that unwinding what they do can cost you a lot in taxes. Do you have veto power or is he or she empowered to trade on your behalf without prior discussion and approval?

 

[pb4uski]

+1 I seem to have a faint recollection of a post where a FA made some moves without considering the tax implications and screwed a poster big time.

 

[RetiredHappy]

The biggest potential downside of giving a FA access to funds you have in taxable accounts is that unwinding what they do can cost you a lot in taxes. Do you have veto power or is he or she empowered to trade on your behalf without prior discussion and approval?

+1. We have more than 20 positions in each account, taxable and tax deferred that ML invested on our behalf. After we went our own way, I cannot undo what they have done without costing a ton in taxes.

 

[RetireBy90]

I would suggest some reading here and some books. One of my favorites is “All about asset allocation” by Ferri. Gave me some good background.

 

[Koolau]

+1 I seem to have a faint recollection of a post where a FA made some moves without considering the tax implications and screwed a poster big time.

I would guess the FA came out just fine!

 

[OK EE]

The biggest potential downside of giving a FA access to funds you have in taxable accounts is that unwinding what they do can cost you a lot in taxes. Do you have veto power or is he or she empowered to trade on your behalf without prior discussion and approval?

That can indeed be a problem. You have to be a little bit aware to make sure they're not buying individual positions in brokerage accounts or buying stuff that spins off a disproportionate amount of dividends which causes tax churn. Fortunately my FA while he put some stuff in DFA mutual funds, they are low cost and are allocated in a way that's compatible with my current outlook. I did sell some bond funds and TIPS stuff out of my brokerage to move that to pretax accounts but they were sold at cost basis or even a loss.

The good thing for me is I didn't have to move money when I broke up with my FA. That means I could just leave the investments alone and didn't have to worry about a tax bomb.