Not really a factual question, but if I’m wrong I suppose this could go to General Questions.
We’re looking to retire in a little under a year. I’m having a devil of a time finding the type of financial advice I’m seeking. Every time I search online, I either get financial companies who want to help you plan and save for future retirement (we’ve already been doing that for forty years), or they label themselves “wealth management”. We’re not wealthy, just middle-class.
Just to start a discussion, though, I’m curious how Doper retirees arranged things during and after retirement. Did a professional advise you on how to invest for income? Did you just pick out a couple of income funds yourself and dump everything in there? How is it working out for you?
I’ve been retired for five years. Here’s the secret. Before you retire you need to concentrate on building wealth, which I assume you have been doing. After you retire you need to concentrate on cash flow. Which does not mean cash or even bonds (though you need to stay diversified) but rather less volatile equities which produce good returns, like dividend centered funds.
We figure out how much we needed to live on, how much we’d get from Social Security, and figured out how much we’d need from our investments. You also need some cushion for stuff like home repairs and new cars.
Our investments haven’t gone up as much as the market, but in the last month or so they haven’t gone down as much as the market either. Now I’ve hit 70 and taken Social Security we don’t need an awful lot from our investments to live on.
I’ve been taking money out of my IRA every year in an amount that keeps my taxes low. One year we parked it in a Roth, but mostly we take it in cash for expenses.
One big difference for taxes is that you can control your official income to a large extent by controlling how much you take out of pre-tax investments. I was lucky enough to have a big post-tax pool which came from a buyout 25 years ago all of which I invested.
Before I retired my investment adviser did a Monte Carlo simulation giving the probability of having a certain amount of money left after N years. Now we’ve done better than the 20% level (that is, only 20% chance of doing better) thanks to the good market, but it was a much more informative method than any of the retirement planners I ever found online.
It helps to start out with enough money you can fund your retirement through earnings, of course. That also means you don’t have an incentive to do panic selling. I’m not looking at my balance these days, but I don’t need to.
Before retiring, I had very little control over my 401(k) which was pretty much all the money I had. There were a few choices of funds to participate in, so I chose one of those.
After I retired I had to roll over into an IRA. I selected a fund company that manages for socially responsible investing and that also had a good profit/growth record. That was 7 years ago. I have more money in the fund now than when I retired, due to the fortunate fact of also having a roughly 50% pension. Since I have no-one I care about (except for my husband) to inherit it when I die, I’m concentrating on a plan to spend it down over the next 10 years, but it isn’t easy. I have reached the age for a forced minimum withdrawal, but that isn’t nearly enough. I’m just not a big spender. Oh well, the charities will benefit when I’m gone.
I have a “wealth manager,” well, I just usually call him my money guy, but what he does is what a wealth manager usually does. And I’m not really wealthy, but I had a tidy sum in 401k dollars and a lump sum retirement payment from the company from which I retired. Fortunately, I had a good friend who retired about a decade before me, and she had three money guys before she stuck with the third one. I trusted her judgment and went with him when I retired, too.
I only talk to him a couple of times a year, but he’s always willing to spend as much time talking to me as I want. If I want him to do something differently (like I wanted him to be more conservative when I first retired than he thought I needed to be), he always listens and sometimes talks me into it, but if I push back strongly, he’ll do what I want. But as I said, we don’t interact all that much.
My balance has gone up and down with the market changes, but not much. I’ve barely dipped into my principal at all.
It’s difficult for me to make specific recommendations because I just lucked into a good guy, but I wouldn’t rule out working with a “wealth manager” totally.
Yeah, I think the term “wealth manager” is just a fancy name for Financial Advisor. I could be wrong there. Anyway, I have one advisor who helped us put together a nice portfolio years ago when we wanted to consolidate a number of stray 401K and other accounts, and another advisor who oversees my inheritance account (which is somewhat of a nest-egg). In both cases, I got and followed the advice to start moving some of the risk away from the stock market, to income-bearing funds that have less exposure to stocks, for less volatility, as mentioned already. The advice was to have roughly the same % of your investments exposed to the stock market as your age (I am in my mid-50s so around 50% of my portfolio is in more aggressive stock funds, and I have been gradually moving things to less exciting interest-bearing funds with less exposure to stocks). When I am 60 it should be around 40% in stocks and the rest in boring interest-bearing funds.
I am a few years behind you, but interested in what people are doing at retirement, and afterward.
We had multiple 401 accounts when we retired and consolidated them all into a single account for ease of access. This is not difficult to do as long as you never actually receive the money during the transfer. It must go from one 401/IRA type account to a similar entity by direct transfer to avoid tax consequences. It certainly simplifies things when you start drawing down on the account.
I think, at least to a point, that depends on who/what institute you’re working with. A friend of mine is a ‘wealth manager’ at a large/nationwide bank. She’ll jokingly (but not jokingly) say that she won’t even talk to you unless you have at least $5m to invest.
ETA, looks like USBank (who she works with) starts “Private Wealth Management” at $3m.
I think you’ve misstated the common advice, as the usual advice is that you should decrease your exposure to stocks as you get older. I’ve heard two versions of the rule of thumb:
The % stocks in your portfolio should be 110 - your age.
The % stocks in your portfolio should be 100 - your age.
So generally speaking, if you’re 50, you would want 50-60% of your investments in stocks; when you’re 70, you’d want 30-40% of your investments in stocks. An individual may choose to stray from this advice if they are risk-tolerant or risk-averse.
I recommend reading The Intelligent Asset Allocator; it explains in very simple terms how different target allocations of stocks/bonds, together with annual rebalancing of your portfolio to maintain that target allocation despite varying rates of return for those stocks and bonds in any given year, works to provide the best rate of return for your chosen risk level.
One helpful concept you’ll learn about in that book (and elsewhere) is the efficient frontier, a curve that describes the performance of various stock/bond allocations. A 100% stock allocation provides the best average rate of return year after year, but entails the most risk: some years are terrible, others are very good. A 100% bond allocation provides the lowest average rate of return year after year, but surprisingly doesn’t entail the least risk. Having at least a small portion of your portfolio in stocks gives you the ability to rebalance your portfolio whenever one asset outperforms the other, providing the minimal risk (no single year is awesome, but no single year is truly terrible either) while providing an average rate of return that’s a good bit better than a bonds-only portfolio.
One important tip: selling ordinary investments for the purpose of annual rebalancing triggers a tax liability. If possible, it’s better to do your annual balancing within your retirement accounts, where it won’t incur a tax liability.
Wife and I are expecting to retire in about six years. For maybe the last ten years we’ve only had 5% bonds in our portfolio, accepting greater risk in exchange for greater returns. Now that we’re getting closer to retirement, we’re cranking that percentage up year after year. Currently at 10%, and should have it up over 25% by the time we retire.
As for what to do with our wealth after retirement, that’s more challenging. Minimum required distributions from retirement accounts start at age 72 and can cause unwelcome income tax liabilities, and to minimize those, you may need to start planning and acting many years ahead of that, depending on where and how big your assets are. A lot of thought has been put into how to plan your withdrawals from retirement accounts (which are taxed at income tax rates) and withdrawals from ordinary investments (which are taxed at capital gains tax rates). T. Rowe Price has published a guide for how to plan your investment withdrawals to keep your tax bill under control:
That web page is just the introduction. From there, you can download a PDF file that covers it all in detail; it’s a little complicated, but if you can make some sense of it, you may be able to save some money on taxes.
My wife and I have a “wealth manager”. We each choose how speculative we want to be and have to re-choose every year. My wife is one level more conservative than me and I have done somewhat better over the years. There is forced payout every year and most of that has gone into a non-tax-shelter although we have occasionally actually used the money. But so far we have mostly lived off our pensions and government pension payments. We would like to save some of the principle for the kids, but not to the point of depriving ourselves.
I have a friend who has fewer interests than me and he manages his own investments full time. He claims he make over $150K last year. And his only heirs are a couple of cousins. I guess they will do well by him, but it would bore me to tears.
Since starting this thread, I see that Schwab (where I invest) has a service called “Intelligent Income”. It looks like you just hand over all investing decisions to them, and they invest in a variety of ETFs designed to produce retirement income. Because they’re probably using Schwab ETFs, there’s no fee for this.
10 or so years ago in early retirement on the advice of our newly elected FP we consolidated 401ks. It started out conservative at our request when Bond yields were great. Now closer to 60 our position is more in stocks since the bonds came due and would’ve renewed at much lower yield. IIRC. It in the hands of the FP who used to be with Morgan Stanley now he’s independent. We knew some folks who recommended him and we hitched our wagon up to his gravy train.
Barring some medical or planetary catastrophe in old age we should be able to continue our very modest lifestyle.
Consolidating 401Ks into an IRA is the first thing to do when you retire. Though I allocated my 401K with the advice of my FP so that my entire portfolio made sense, all 401Ks have limited investment options, and so moving them so you have more freedom makes sense. Plus it has no tax implications.
The AT&T 401K back in 1990 had only two options - AT&T stock and a balanced stock fund. No other 401K I’ve been in even let you invest in company stock.
Our first stock plan at my company was only in company stock. Then, they changed the plan and there were limited diversification options. And, then, we changed to the final plan I retired under, and we had a huge range of diversification. But we could still invest in company stock if we wanted to. Although the initial plan (called Employee Stock Ownership Plan or ESOP – is that a term of art or specific to my company?) was frozen at the time we converted to the second plan. It just kinda sat there accumulating or de-accumulating as the case may be until I retired.
I knew some old guys (including gals) we were strongly inculcated into the old “we are a family” way of thinking and kept their investments in all company stock. Now, that’s risky.
My Dad was a “legacy” ATT employee (started at a Bell Telco before deregulation)middle mgmt. Retired at 52 iirc, took the company buyout early 80’s and never looked back. Recently passed away last year at 89. Was collecting a pension for longer than he was employed. Life is good!
Being young and stupid, I had half my 401K in AT&T stock. As it turned out when the trivestiture came and I moved it to an IRA, the AT&T stock had outperformed the general stock fund.
However I knew someone from IBM who had all his money in IBM stock. When he got laid off it was very low.
ESOP plans often let you buy company stock at a discount. That’s been in addition to 401K plans. The last place I worked only gave a 5% discount so I never took part in the plan, which was fine. And then they sometimes give you stock in place of the old options which pretty much went away with new laws.
I have a real issue with that. It doesn’t take into account how much money you have, and it doesn’t take into account how much money you need. A 70 year old with $100,000 in their retirement who needs to take out $25,000 per year can’t afford to have 30% of their investments tied up in equities. On the other hand, if they only need $6,000 a year 30% in stocks is fine.
What I did was to first establish my monthly nut, tracking all expenses for the two years before my retirement. Not as hard as it sounds, I used a single credit card for almost everything, and the Costco Visa sends a nice annual statement. Once I knew what I needed each month, I put 24 months worth of withdrawals in cash equivalents. It was originally a CD ladder with a two year CD maturing quarterly, but CD rates are so low I just use a money market now.
I then put 84 months worth of withdrawals into a bond index fund. Any income thrown off by this fund goes to the money market account.
All the rest, and it’s currently around 77%, is in stocks. Frankly, I’m not risk averse, but I know that even if the shit hits the fan and the stock market drops by 60%, I won’t have to sell any stocks for at least nine years, and I can wait out a nine year depression.
We didn’t even have anything other than our 401K accounts till I retired the first time. Then we went to the financial advisor provided by our credit union and he set up some annuities for us. We are fiscally conservative and he got us in a couple of funds that have done well, nearly doubling our original roll-overs.
We also opened another smaller account with my post-retirement 401k funds to be used for our grandkids’ education 20-ish years from now. Here’s hoping it’ll be enough to cover their tuition and books in the future.
Don’t ask me any specifics about any of these funds - we let Dave do what he thought was best, and so far, we’ve been pleased. With luck, we won’t touch any of the accounts till we have to by law, unless we decide we want to have some fun or if the roof needs to be replaced. We shall see.
