Retired at 55

[redtail]

I just joined the forum, and this is my first post. I retired 3 years ago at 55. My company decided to pack up and send everything to China. That was OK, becouse the company was making money, and with their payout and my 401K, I had a just a little over 1 million to invest for retirement. I picked up a financial fee only advisior that was highly recommended. He charges .75%. My wife still works, mainly for the heath insurance benefit. I hope she can retire in 4 years. My assest allocation is 17% domestic stock, 8% foreign stock, 22% in bonds, and the rest in short term cash. My question is that the short term cash is paying out 1/10th of 1 per cent. I asked my advisior if we could put it into someting where it could make more, like maybe TIPS, but he shruged that off. I need some cash availible, because I so draw out $2000 a month to live on and pay bills. The only bill my wife and I have is the house payment, and that will be payed off in 3 years. Any help would be appreciated. Thanks, Chris.

 

[pb4uski]

TIAA Direct is currently paying 1.24% for an FDIC insured savings account. Discoverbank pays 0.8% and some of the other internet banks are in the same range.

Your AA is very conservative for a 58 yo couple. Why so conservative?

Not only that, if you studied a bit and learned some you could do-it-yourself and get an extra .75% by getting rid of your FA. Think of it this way, on the cash you are earning a negative .65% and inflation is eroding your spending power.

 

[REWahoo]

Fire your advisor.

53% of your $1M nest egg in cash = $530,000 per year being eaten away by inflation and $7,500 in annual fees you pay your advisor.

Find a better advisor, or better yet, do a little reading and learn to manage your nest egg yourself and stop paying $7,500 a year to someone who isn't giving you good advice.

 

[MichaelB]

Redtail, welcome to the forum.

Fire your advisor.

53% of your $1M nest egg in cash = $530,000 per year being eaten away by inflation and $7,500 in annual fees you pay your advisor.

Find a better advisor, or better yet, do a little reading and learn to manage your nest egg yourself and stop paying $7,500 a year to someone who isn't giving you good advice.

+1

Better late than never. Check out this link, http://www.early-retirement.org/for...reading-list-with-a-military-twist-46732.html and focus on the investing books. William Bernstein's books are a great place to start.

 

[Live And Learn]

Fire your advisor.

53% of your $1M nest egg in cash = $530,000 per year being eaten away by inflation and $7,500 in annual fees you pay your advisor.

I can't visualize the math around that although I'm sure its right - can you provide the icky formula so I can get my arms around it. I was on the math team so if I can "see it" I can "feel it". Thanks so much.

 

[REWahoo]

I can't visualize the math around that although I'm sure its right - can you provide the icky formula so I can get my arms around it. I was on the math team so if I can "see it" I can "feel it". Thanks so much.

OK....

....I had a just a little over 1 million to invest for retirement. I picked up a financial fee only advisior that was highly recommended. He charges .75%.

Based on this the OP is paying the advisor a fee of 0.75% on $1M in assets, or $7,500.

My assest allocation is 17% domestic stock, 8% foreign stock, 22% in bonds, and the rest in short term cash.

17% + 8% + 22% = 47% of the $1M is in those asset classes, and the rest (53% or $530,000) is in short term cash earning almost nothing (0.1% x $530,000 = $530). Inflation, as measured by the CPI, is running at 2.3%, so the cash earnings of 0.1% is being eaten away by inflation by the tune of 2.2%, or $11,660 per year ($530,000 x 2.2%).

 

[james7]

Fire your advisor.

53% of your $1M nest egg in cash = $530,000 per year being eaten away by inflation and $7,500 in annual fees you pay your advisor.

Find a better advisor, or better yet, do a little reading and learn to manage your nest egg yourself and stop paying $7,500 a year to someone who isn't giving you good advice.

+2

It is my belief that any financial advisor that does an asset allocation and keeps 53% of his client's assets in cash is incompetent, unless there is a reason for doing so. Valid reasons could be that you are going to invest in a business or real estate, buy a vacation home, or invest in stocks/bonds over a period of time because he feels the markets are too high now. If the asset allocation is a finished product as you describe it, with 53% of your assets under your mattress, you need to fire him and hire someone else, or do it yourself.

And this guy was recommended to you? WOW!!

 

[jclarksnakes]

Welcome to the forum. The numbers REWahoo posted are accurate. Your financial advisor has given you terrible advice and is charging you $7500 for it.

 

[Live And Learn]

OK....

Based on this the OP is paying the advisor a fee of 0.75% on $1M in assets, or $7,500.

17% + 8% + 22% = 47% of the $1M is in those asset classes, and the rest (53% or $530,000) is in short term cash earning almost nothing (0.1% x $530,000 = $530). Inflation, as measured by the CPI, is running at 2.3%, so the cash earnings of 0.1% is being eaten away by inflation by the tune of 2.2%, or $11,660 per year ($530,000 x 2.2%).

Holy SMOKES Batmat ! Number IS hard but I understand it. Thank you for explaining that.

 

[urn2bfree]

And why pay any percent at all for "management" of the cash part of your portfolio? Fire the advisor and either learn to do it yourself or go with a lower cost guy like Rick Ferri at Portfolio Solutions(0.25%) or Evanson Assets or Cardiff fixed fee advisors for example.

 

[Amethyst]

Which should OP do first: fire the FA, or go get smart about financial management? This is a serious question. If OP is starting out at zero knowledge (not saying he is, just speculating), then is firing the FA safe to do?

Amethyst

And why pay any percent at all for "management" of the cash part of your portfolio? Fire the advisor and either learn to do it yourself or go with a lower cost guy like Rick Ferri at Portfolio Solutions(0.25%) or Evanson Assets or Cardiff fixed fee advisors for example.

 

[Hud3]

One solution out of many possible is to put your money in mutual funds and let the mutual fund managers do the managing. My choice was Vanguard, and with $1MM you qualify for an annual free, personalized financial plan. My overall costs are 0.17% for a mix of index and managed funds. No need to pay an adviser.

 

[pb4uski]

.....It is my belief that any financial advisor that does an asset allocation and keeps 53% of his client's assets in cash is incompetent, unless there is a reason for doing so. Valid reasons could be that you are going to invest in a business or real estate, buy a vacation home, or invest in stocks/bonds over a period of time because he feels the markets are too high now. If the asset allocation is a finished product as you describe it, with 53% of your assets under your mattress, you need to fire him and hire someone else, or do it yourself. .....

+1 Unless there is a specific reason for doing so, it makes no sense for the $1m investment portfolio of a 58yo retiree to hold $530k of cash unless OP is on the far side of risk averse.

I am about the same age and my AA (which I think is typical of many ERs my age) is 45% domestic equities, 15% international equities (60% equities) and 40% fixed income and cash.

 

[pb4uski]

One solution out of many possible is to put your money in mutual funds and let the mutual fund managers do the managing. My choice was Vanguard, and with $1MM you qualify for an annual free, personalized financial plan. My overall costs are 0.17% for a mix of index and managed funds. No need to pay an adviser.

+1 Vanguard rocks.

 

[redtail]

One solution out of many possible is to put your money in mutual funds and let the mutual fund managers do the managing. My choice was Vanguard, and with $1MM you qualify for an annual free, personalized financial plan. My overall costs are 0.17% for a mix of index and managed funds. No need to pay an adviser.

Thanks everyone for your input. FYI, my FA works thru Fidelity, he is not employed thru Fidelity. Other than the cash, my stocks and bonds are in mutual funds. All my bonds are thru Pimco.

 

[pb4uski]

Is there a particular reason that you or your FA are holding so much cash (that is losing money after considering inflation)?

 

[jclarksnakes]

Which should OP do first: fire the FA, or go get smart about financial management? This is a serious question. If OP is starting out at zero knowledge (not saying he is, just speculating), then is firing the FA safe to do?

Amethyst

The answer seems pretty simple to me. Fire the FA immediately. Leaving the money where it is for a couple days or even a month while learning should not hurt anything. If it does then the FA probably had you invested poorly and so that is just another reason to not let him/her have another penny of your money. After the short learning process the money can be moved to investments with low expenses with a good company like Vanguard or Fidelity. If you have enough to invest with them they will provide free advise on a simple but effective AA. As you learn more you can make adjustments.

 

[Mulligan]

And why pay any percent at all for "management" of the cash part of your portfolio? Fire the advisor and either learn to do it yourself or go with a lower cost guy like Rick Ferri at Portfolio Solutions(0.25%) or Evanson Assets or Cardiff fixed fee advisors for example.

I enjoy reading Rick's comments. Though I don't know why anyone would pay him the .25% when he said on TV this week just to split your money into the 4 core funds in Vanguard total stock, international, bond and REIT fund. He gave away his secret for free

 

[Animorph]

Man, I thought my cash overweight of 10% was high! If he's an active manager he may be saving the cash for a Euro crash and U. S. recession. That's what my 10% is for. Or maybe better bond valuations? However, if everything miraculously works out for the better, 53% cash will be missing the boat big time. How confident are you in this guy? Is this a temporary move or does he expect this to be a long-term allocation? If this is long-term, how does he expect to fund your retirement? Are your expenses really low and inflation expectations really low? Ask questions and make your FA earn his pay. If you don't like the answers, leave him.

 

[Hud3]

High management fees can significantly chip away at your returns. My Vanguard portfolio is 80% index funds and 20% managed funds and still only costs me 0.14%. I don't think I could do much better than that unless I wanted to manage a portfolio of individual stocks myself, which I don't. Too many other fun things to do than worry about money!

 

[urn2bfree]

I enjoy reading Rick's comments. Though I don't know why anyone would pay him the .25% when he said on TV this week just to split your money into the 4 core funds in Vanguard total stock, international, bond and REIT fund. He gave away his secret for free

Mostly to get access to the DFA index funds which some believe are run better and cheaper than Vanguard...and have been shown to perform better than Vanguard index funds in some markets, not all. (Past performance is not an indication of future results.,etc)

 

[JOHNNIE36]

redtail, just a reply to say hello and to welcome you to the forum. I can't help you much as I am strictly a CD kind of guy. Your post kind of caught my eye because I retired in 1988 from a plant in Grand Rapids. Did you stay there in retirement or have you moved? Again, welcome and good luck for a great retirement.

I know you're not old enough to be a "redtail" but an interesting name.

 

[redtail]

Is there a particular reason that you or your FA are holding so much cash (that is losing money after considering inflation)?

At first, he waned to see how the market was doing. The first year, 2009, it was 90% in cash, 2010 80% cash, now over 70% in cash. That is why I asked the question, I didn't think it was right to keep that much of my assets in cash. So I called him to move some of the money out of cash, to a better investment. He said he waned to wait a little bit. He has access to all of Fidelity's no load mutual funds.

 

[redtail]

redtail, just a reply to say hello and to welcome you to the forum. I can't help you much as I am strictly a CD kind of guy. Your post kind of caught my eye because I retired in 1988 from a plant in Grand Rapids. Did you stay there in retirement or have you moved? Again, welcome and good luck for a great retirement.

I know you're not old enough to be a "redtail" but an interesting name.

Thanks johnnie. I still live in Grand Rapids. Redtail must have another meaning that I don't know about. I picked that name because I'm a falconer, and I been flying redtail hawks now for 15 years. It's makes my retirement very enjoyable interacting with these birds of prey.

 

[REWahoo]

At first, he waned to see how the market was doing. The first year, 2009, it was 90% in cash, 2010 80% cash, now over 70% in cash.

Wow. The S&P 500 doubled between the spring of 2009 and now and you missed out on virtually all of those market gains. Keeping you primarily in cash during that time was a very costly strategy, not to mention the fact the FA charged you an annual fee to give you this lousy advice!