Hired a FA

[jeffst]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%.

We are not yet retired. Mid 50s. But it will be sooner than later.

When earning a paycheck / accumulation mode I can see where the1% doesn't seem like much.

But in retirement/drawdown the math looks different. My simple formula based on the 4% annual withdrawal rate rule (which I think is high, but that's different discussion)

If the FA get's 1% then either:
- I live on 3%
- or have to pull 5% to net my 4%

Paying ~ 25% of my annual "salary" to an FA does not add up. For me.
YMMV

Jeff

 

[VanWinkle]

We are not yet retired. Mid 50s. But it will be sooner than later.

When earning a paycheck / accumulation mode I can see where the1% doesn't seem like much.

But in retirement/drawdown the math looks different. My simple formula based on the 4% annual withdrawal rate rule (which I think is high, but that's different discussion)

If the FA get's 1% then either:
- I live on 3%
- or have to pull 5% to net my 4%

Paying ~ 25% of my annual "salary" to an FA does not add up. For me.
YMMV

Jeff

Amen brother!

 

[jimmyv65]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%.

That is the higher end of prices for a FA. You can find as low as .3. Anything approaching 1 or higher is pricey.

 

[tsturbo]

I agree, 1% may not sound like a lot but when you withdrawal 4% a year, that is 25%, too much for me to want to part with!

 

[Circles]

Did you talk to anyone else besides RJ? Did you talk to anyone at Fisher Investments?

 

[Kim451]

I'm debating hiring a FA also. I've had good luck with my investments (retired 10 years early) but, really, it's luck with continual saving, and moving to the right funds at the right times. I can't claim to be a knowledgeable investor. Reading themoneyhabit.org (the blog of a woman who retired at 28 and lives in Manhattan), she's saying that passive investing in low-cost index funds is a viable strategy.
Would you guys/gals agree?

 

[smoghat]

We are not yet retired. Mid 50s. But it will be sooner than later.

When earning a paycheck / accumulation mode I can see where the1% doesn't seem like much.

But in retirement/drawdown the math looks different. My simple formula based on the 4% annual withdrawal rate rule (which I think is high, but that's different discussion)

If the FA get's 1% then either:
- I live on 3%
- or have to pull 5% to net my 4%

Paying ~ 25% of my annual "salary" to an FA does not add up. For me.
YMMV

Jeff

So when we FIRE’d in 2016, we spent a few months asking different advisors about what they would recommend. They knew I thought the 4% rule would be fine for us (we are 51 now… if the market goes down significantly, we’ll decrease our spend significantly).

In the end, the best of them (who worked at Morgan Stanley and would’ve made 1% of our stash no matter performance) said, look you have $5 million, at 4%, that’s $200,000 a year pre-tax. We’ve run the math and I wonder, could you get a part-time job for $50,000 a year? 1% would make all the difference.

So I fire’d him. Problem solved.

 

[GoBears]

I'm debating hiring a FA also. I've had good luck with my investments (retired 10 years early) but, really, it's luck with continual saving, and moving to the right funds at the right times. I can't claim to be a knowledgeable investor. Reading themoneyhabit.org (the blog of a woman who retired at 28 and lives in Manhattan), she's saying that passive investing in low-cost index funds is a viable strategy.
Would you guys/gals agree?

I recommend that you spend sometime at Bogleheads.org as the site is dedicated to index fund investing. You can then reach your own conclusion on whether that approach is the right one for you. It is for me. But YMMV.

 

[travelover]

..........Reading themoneyhabit.org (the blog of a woman who retired at 28 and lives in Manhattan), she's saying that passive investing in low-cost index funds is a viable strategy.
Would you guys/gals agree?

Yes and so does Warren Buffett, but then what does he know about investing? https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html

 

[youbet]

OK. I think Fidelity or whomever can calculate the RMD, but wouldn't you still need to say when via phone call or electronic means? Also, need to set any deductions - we pay our income taxes from IRA withdrawals not quarterly payments.

When I do my and DW's RMD's via Schwab:

1. Schwab calculates the number and tracks transfers.

2. Transfers counting toward your RMD include Qualified Charitable Distributions and the RMD itself.

3. You fill out a brief form (I do it on line) specifying when to transfer and what tax to withhold. You don't have to do it all at once if you'd rather do it monthly, quarterly or whatever. I do a few QCD's during the year and then do the balance as a single RMD late in the year. I've only transferred cash but you can do "in kind" transfers.

It's not really an automated process. You have to be involved. But any of the major brokerage houses do all the heavy lifting for you. Maybe we can call it semi-automatic.

 

[Dc45]

If you are paying 1% AUM and withdrawing 4% per year is that the same as paying 25% of your take per year to this advisor?

 

[Dc45]

That’s the math I can up with it’s crazy

 

[Qs Laptop]

I'm debating hiring a FA also. I've had good luck with my investments (retired 10 years early) but, really, it's luck with continual saving, and moving to the right funds at the right times. I can't claim to be a knowledgeable investor. Reading themoneyhabit.org (the blog of a woman who retired at 28 and lives in Manhattan), she's saying that passive investing in low-cost index funds is a viable strategy.
Would you guys/gals agree?

Although I do have a couple of them in my portfolio, I'm not an index fund investor. I prefer to actively manage my own portfolio. Beating the index is possible though it takes a lot of work. I enjoy this sort of thing so I do it.

Passive investing in index funds is a great way to invest, if you're not interested in managing your portfolio. It's a low maintenance approach that gives good results.

Hiring a FA is handicapping your results from the get-go because of the fees involved. It's just too hard to overcome the amount they siphon off your portfolio. You'd be far better off investing in passive index funds than hiring a FA.

 

[bberris]

Their sliding scale works like tax brackets. Starting at 1.2% for the first $500K and then .9% for the next bracket. I didn’t figure out the exact percentage but I think I’ll be close to 1%. Yes, that hurts, but Fido wanted .8% and I just couldn’t get comfortable with them. This company is much broader in their support. They are not tax experts, but they know how taxes work, they also seem more holistic in that they’re encouraging use to get all are other paperwork in order (will, trust, etc).

Regarding taxes, I am a CPA who worked outside of the tax area. I know enough to understand my taxes, but they are able to keep up on all other things that need to be kept up on like estimating my RMD’s and combining that with a ROTH conversation strategy. Their models are well thought out and are something I could not have created myself.

Funny you should mention taxes. Let's use the AUM fee and compare it to a tax. With 1 % fee on total assets, your safe withdrawal rate is say 3 % instead of 4 %. So you are being effectively taxed 25 % on your income, in addition to actual taxes. With that sort of tax rate, it's hard to imagine any sort of strategy that would beat losing the advisor.

I guess I'm beating a very dead horse here.

 

[gerntz]

I have inherited IRAs with Fidelity, and they not only calculate the RMD for me every year, I have set up instructions (all online and updatable in my account) when to pay them out, from what funds, where to send the RMDs, and how much in taxes to withhold. It took a little tinkering to figure out how I wanted it set up, but now I don't even have to think about the mechanics, I just wait for my money to roll in!

OK. But for me, several of those items aren't fixed year to year.

 

[gerntz]

When I do my and DW's RMD's via Schwab:

1. Schwab calculates the number and tracks transfers.

2. Transfers counting toward your RMD include Qualified Charitable Distributions and the RMD itself.

3. You fill out a brief form (I do it on line) specifying when to transfer and what tax to withhold. You don't have to do it all at once if you'd rather do it monthly, quarterly or whatever. I do a few QCD's during the year and then do the balance as a single RMD late in the year. I've only transferred cash but you can do "in kind" transfers.

It's not really an automated process. You have to be involved. But any of the major brokerage houses do all the heavy lifting for you. Maybe we can call it semi-automatic.

Thanks. You clarify the point I was having trouble with: calling something automatic that isn't truly. Calling it semi-auto fits the bill for me.

 

[gerntz]

Funny you should mention taxes. Let's use the AUM fee and compare it to a tax. With 1 % fee on total assets, your safe withdrawal rate is say 3 % instead of 4 %. So you are being effectively taxed 25 % on your income, in addition to actual taxes. With that sort of tax rate, it's hard to imagine any sort of strategy that would beat losing the advisor.

I guess I'm beating a very dead horse here.

I don't think the horse is dead. No way I'd pay 1%. 0.05-0.25%, would be acceptable to me. That's a 1-6% tax range.

 

[The Cosmic Avenger]

OK. I think Fidelity or whomever can calculate the RMD, but wouldn't you still need to say when via phone call or electronic means? Also, need to set any deductions - we pay our income taxes from IRA withdrawals not quarterly payments.

I have inherited IRAs with Fidelity, and they not only calculate the RMD for me every year, I have set up instructions (all online and updatable in my account) when to pay them out, from what funds, where to send the RMDs, and how much in taxes to withhold. It took a little tinkering to figure out how I wanted it set up, but now I don't even have to think about the mechanics, I just wait for my money to roll in!

OK. But for me, several of those items aren't fixed year to year.

I was addressing the fact that you can give Fidelity instructions to do those things ahead of time online if you know what they will be. Obviously, if you don't know, you can't tell them, and if they change you have to update them. But even then, updating them online is pretty easy, IMO.

 

[audreyh1]

OK. But for me, several of those items aren't fixed year to year.

Cosmic Avenger’s post shows how it can be automated. If you want to tinker with it year after year - well, of course it’s not going to be automated. But if you figure the “good enough” setup, you can set it and forget it which is what Cosmic Avenger seems to be doing.

 

[outofratrace]

Bet you guys don't know this. If you pay a advisor 1% and he/she takes the 1% and invests it each year and you don't withdraw a dime the FA will have more $$ than you in 70 years. Assumes 8% return for both accounts

(Year #) (Investor's account) (Total Addition) (Advisor Fee$ AUM) (Advisor's account invested)
1 $100,000 $0 $1,000 $1,000
2 $106,920 $0 $1,069 $2,149
3 $114,319 $0 $1,143 $3,464
4 $122,230 $0 $1,222 $4,964
5 $130,688 $0 $1,307 $6,668
6 $139,732 $0 $1,397 $8,598
7 $149,401 $0 $1,494 $10,780
8 $159,740 $0 $1,597 $13,240
9 $170,794 $0 $1,708 $16,007
10 $182,613 $0 $1,826 $19,114
11 $195,249 $0 $1,952 $22,596
12 $208,761 $0 $2,088 $26,491
13 $223,207 $0 $2,232 $30,842
14 $238,653 $0 $2,387 $35,696
15 $255,167 $0 $2,552 $41,104
16 $272,825 $0 $2,728 $47,120
17 $291,705 $0 $2,917 $53,807
18 $311,891 $0 $3,119 $61,230
19 $333,473 $0 $3,335 $69,463
20 $356,550 $0 $3,565 $78,586
21 $381,223 $0 $3,812 $88,685
22 $407,604 $0 $4,076 $99,856
23 $435,810 $0 $4,358 $112,202
24 $465,968 $0 $4,660 $125,838
25 $498,213 $0 $4,982 $140,887
26 $532,689 $0 $5,327 $157,485
27 $569,551 $0 $5,696 $175,780
28 $608,964 $0 $6,090 $195,932
29 $651,104 $0 $6,511 $218,117
30 $696,161 $0 $6,962 $242,528
31 $744,335 $0 $7,443 $269,374
32 $795,843 $0 $7,958 $298,882
33 $850,915 $0 $8,509 $331,302
34 $909,799 $0 $9,098 $366,904
35 $972,757 $0 $9,728 $405,984
36 $1,040,072 $0 $10,401 $448,864
37 $1,112,045 $0 $11,120 $495,893
38 $1,188,998 $0 $11,890 $547,454
39 $1,271,277 $0 $12,713 $603,964
40 $1,359,249 $0 $13,592 $665,873
41 $1,453,309 $0 $14,533 $733,676
42 $1,553,878 $0 $15,539 $807,909
43 $1,661,406 $0 $16,614 $889,156
44 $1,776,376 $0 $17,764 $978,052
45 $1,899,301 $0 $18,993 $1,075,289
46 $2,030,733 $0 $20,307 $1,181,620
47 $2,171,259 $0 $21,713 $1,297,862
48 $2,321,511 $0 $23,215 $1,424,906
49 $2,482,159 $0 $24,822 $1,563,720
50 $2,653,924 $0 $26,539 $1,715,357
51 $2,837,576 $0 $28,376 $1,880,961
52 $3,033,936 $0 $30,339 $2,061,777
53 $3,243,885 $0 $32,439 $2,259,158
54 $3,468,361 $0 $34,684 $2,474,575
55 $3,708,372 $0 $37,084 $2,709,624
56 $3,964,991 $0 $39,650 $2,966,044
57 $4,239,369 $0 $42,394 $3,245,721
58 $4,532,733 $0 $45,327 $3,550,706
59 $4,846,398 $0 $48,464 $3,883,227
60 $5,181,769 $0 $51,818 $4,245,703
61 $5,540,347 $0 $55,403 $4,640,762
62 $5,923,740 $0 $59,237 $5,071,261
63 $6,333,662 $0 $63,337 $5,540,298
64 $6,771,952 $0 $67,720 $6,051,242
65 $7,240,571 $0 $72,406 $6,607,747
66 $7,741,618 $0 $77,416 $7,213,783
67 $8,277,338 $0 $82,773 $7,873,659
68 $8,850,130 $0 $88,501 $8,592,052
69 $9,462,559 $0 $94,626 $9,374,042
70 $10,117,368 $0 $101,174 $10,225,139

 

[Qs Laptop]

Bet you guys don't know this. If you pay a advisor 1% and he/she takes the 1% and invests it each year and you don't withdraw a dime the FA will have more $$ than you in 70 years. Assumes 8% return for both accounts

Your setup assumes adviser's account earns 6.9%. If the adviser's account earned 8% the adviser would surpass your amount in less than 70 years. (Can't be bothered to run it through a spreadsheet; if you like you could do it.)

 

[outofratrace]

Your setup assumes adviser's account earns 6.9%. If the adviser's account earned 8% the adviser would surpass your amount in less than 70 years. (Can't be bothered to run it through a spreadsheet; if you like you could do it.)

It takes out the advisor fee from your account. But anyway the point is the advisor comes out good because of compounding. In 70 years or less you've sacrificed over 50% of your total account. This of course assumes both accounts earn the same and are taxed the same.

 

[flintnational]

^^^And if you assume the client is also taking a 3% WR (he is giving the FA 1%) the FA's account value passes your account value in 41 years.

Year You AUM F A

41 $480,102 $4,801 $496,936

 

[outofratrace]

^^^And if you assume the client is also taking a 3% WR (he is giving the FA 1%) the FA's account value passes your account value in 41 years.

Year You AUM F A

41 $480,102 $4,801 $496,936

Wow you came up with that fast lol. Anyway why save for retirement when you can just be a FA and have 3-4 clients with the account balance you should have saved yourself? LOL

 

[flintnational]

Wow you came up with that fast lol. Anyway why save for retirement when you can just be a FA and have 3-4 clients with the account balance you should have saved yourself? LOL

I was already working on it before you posted.