The ability to research and follow through (you should have the interest in doing it, too). There are really great resources out there for DIY. The quality you can’t have in this case - and it’s unfortunately one H & I share - is a cone of ignorance that settles upon you when you try to understand the information. We are very intelligent people, both great with numbers, but we simply zone out when it comes to the retirement finances stuff. We recognize our shortcomings. But if you want to spend the time to learn, and if you do the research, understand the information and act upon it, you can most likely handle it.
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You could probably invest on your own if you do some research.
We do have a fee-only advisor (the associated Schwab accounts have a good chunk of our assets; though to minimize fees we don’t include all… he does informally review our full portfolio to ensure proper allocations). But most of our discussions focus on long term strategies: spend-down, taxation, SS planning etc. As we get older, there will be added advantage to us (and someday the kids) to having him in the loop. However if we had bigger pensions and less reliance on milking our assets I think we’d feel more comfortable managing ourselves in these early retirement years.
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One should keep in mind that the article links to the WCI “Best Financial Advisors” page, with affiliate links to financial advisers, such that the person operating the WCI website gets what I expect is notable affiliate commission, if you follow the link and hire a FA. If that affiliate commissions include a % of spending rather than flat rate, the affiliate earnings could be enormous. I read elsewhere that the WCI website generates a mind boggling revenue, 8 figures per year, if I recall correctly.
As I alluded to elsewhere in the thread, I don’t think the primary benefit of a FA is diversifying index funds. They can do a lot of other things beyond this. I suspect the FA test in the article was more a quick litmus test to flag if the FA is the type who claims he will beat the market due to special high fee funds he knows about and that justifies the % of portfolio fee the FA charges; or the “honest” type who believes that he does not have special knowledge beyond market pricing, so a portfolio using low fee index funds offer the best balance of expected return and risk. It was not an exhaustive review of all possible FA functions and benefits.
For example, the title of this thread is “How Much Do You Think You Need to Retire?” This is an important question to answer accurately, if you are contemplating retirement, yet I’d expect only a “tiny sliver” of the general population could provide a good answer to the question that properly considers risks of possible future events (decade+ long stock market decline, high inflation, lives longer than typical, unexpected medical bills, divorce, kids need financial support, …) A good FA could assist, as well as could assist with adjusting portfolio and determining what contributions are appropriate to have improved chances of reaching that goal successfully, even if the equity portion of portfolio is in low fee index funds. There are also many FA functions beyond portfolio allocation, often involving unique and complex financial situations, that may not be applicable to you.
That said, I also believe that most persons would be better off without losing % of portfolio type fees to a FA. This is especially true for younger persons, with basic financial literacy.
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And therein, as the Bard says, lies the rub.
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Well…for those this will affect with retirement planning, the Social Security Fairness Act was signed by the president this afternoon…thus repealing the WEP and GPO provisions affecting many.
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Has this been posted? Apologies if it has.
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We have always had term life through our jobs, but also got individual term policies through USAA when I was pregnant with S1. H increased his FEGLI for a couple of years and decided the rates were too high. He just has the base amount now. No big loss, because he still has the term policy, though it’s getting really expensive and automatically terminates at age 70 (he’s 63). He’s close enough to retirement and our finances are in a good enough position that we could reduce or drop it.
I still have my term policy, but the premiums aren’t bad and I became uninsurable at age 41, so I have hung on to it.
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No FA here. My career in retirement plan administration taught me a ton about markets and the importance of starting to save early, and H was an accounting/fin eng major at a top business school. We sleep well at night. We’re in several mutual funds and in 2019 he moved his 401k into target funds, laddered over a 20 year period. He’s a financial regulator, so there are parts of the market where we can’t go anyway. Most of our post-employment money is in retirement vehicles, so it will be taxed as ordinary income. H isn’t hyped about tax efficiency – he figures if we have the $, we should pay the taxes. S1 is the same way.
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Amen. (Such a nice problem to have.)
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H & I have often said that we are blessed to be able to contribute to society through taxes.
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@thumper1 and any others affected by the changes in SS, their website has a new page.
Basically, don’t call us. Make sure your my-saa account is active and stand by.
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Well…since they make a small direct deposit to my bank account, and I received my small COLA info in the mail, it’s just a wait and see for me…right?
I’m thinking my CFP will be getting as up to steam as possible also.
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if/when you see a change, will you please update here? My father (close to 80) is “keeping an eye out” but I want to also alert him.
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The author confuses the frequently cited “4% rule” as a prescription for withdrawing 4% of the changing value of one’s portfolio each year. This is not what the “4% rule” describes, yet it is a frequent misunderstanding. Rather the “4% rule” references research (done in the 1990s, using historical returns between 1926-1976) that showed that over a 30 year retirement period, a withdrawal rate of 4% of the initial value of a 60/40 portfolio, adjusted annually for inflation, would be successful.
The 4% rule was intended as a guideline for estimating the size of the portfolio one would need at the start of retirement, NOT that one withdraw 4% of the ever-changing present value each year, as the author states here:
An example: With a $1 million portfolio, a first-year retiree withdraws 4 percent, or $40,000. The portfolio then gains 10 percent for the year and grows to $1.056 million. After another 4 percent withdrawal of $42,240 and 10 percent gains in the second year, the balance grows to $1.115 million, even after more than $80,000 in withdrawals.
If the market heads in the opposite direction, the new retiree runs into trouble. After withdrawing 4 percent ($40,000), the market loses 10 percent, dropping the portfolio value to $864,000. If that’s followed by another 4 percent withdrawal of $34,560 in the second year followed and another 10 percent loss, the balance drops to $746,496. The retiree now needs a 34 percent gain just to get back to their original $1 million balance. And that doesn’t account for two years of inflation.
Yes, all retirees face a Sequence of Returns Risk, which is especially fraught in the first decade of retirement. Mitigating that risk includes making thoughtful choices about one’s asset allocation, and understanding different choices around withdrawal methods (and why “constant percentage” withdrawal as confusedly described by the author is not a wise idea).
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I’ve been retired for almost 4 years, but because I had other income streams I haven’t had to take any money from my “retirement” accounts or other savings accounts. Now I have only my pension, and I am not planning to take SS right now.
I’m debating whether I should start taking some from my retirement accounts, because I am going to wind up paying a lot in taxes if I just keep letting it grow for another 10+ years, or if I SHOULD keep letting it grow, and use money I have in other accounts to supplement my pension. Not really expecting “answers” but my retirement/financial issue of the day.
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This sounds like a case for converting to a Roth IRA, assuming you think that your tax rate at 75 (or whenever you will be required to take RMDs) will be higher than your current tax rate.
If your only taxable income is your pension and any dividends/interest/capital gains you are earning in your brokerage account, and if the pension and taxable income will remain the same once you are of RMD age, then it seems logical that you will be in a higher tax bracket once you add SS payments & RMDs to your taxable income.
It is best to pay the income tax on the conversion out of your brokerage/checking account, allowing more to be converted to Roth.
I don’t know if you are single or married, but just take your total taxable income, subtract the standard deduction (or itemized, if appropriate), so that you can see how much headroom you have in your current marginal bracket.
I’m just going to make up numbers and assumptions: Single, pension + interest income = $65K. Subtract $15K std deduction for taxable income of $50K. You have $53K of space within 22% marginal bracket that you could convert to Roth.
There are a lot of other factors to consider, and those factors vary depending on the income levels we’re talking about. If your income is even lower, there is a zero percent capital gains space up to $47K of taxable income, so it could be worth harvesting capital gains if this applies.
You may know all of this already…
If you are within two years of starting Medicare, you want to be aware of the IRMAA surcharges that kick in at MAGI of $106K. Not taxable income but MAGI.
If married, then need to consider tax bracket surviving spouse may be in one day.
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Thanks - I appreciate the response. I am married and our state tax rate is pretty high. I’ve considered Roth conversions for years, but have never executed. My husband and I are both hitting up on the IRMAA surcharge age thing…
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MFJ tips the scale toward conversions b/c of the surviving spouse tax bracket, but that IRMAA surcharge is hard to swallow. Just tripping the first surcharge range results in an additional $1776/year in Part B premium & another $329 in D surcharges, so $2105 for both of you. Even then, that would only allow $54K in Roth conversion. If the conversion fell entirely within the 24% marginal, it would cost $12,960 in Fed taxes + $2105 in IRMAA + your state marginal rate. It does add up.
Only slightly more palatable in the 22%, but more attractive if you can remain below the IRMAA surcharge threshold. The same $54K conversion would only cost you $11,880 + state instead of $15,065 + state.
It is difficult to voluntarily pay more taxes now against the hedge of future taxes.
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you can also make contributions/donations to nonprofits from your pre-tax IRA if you are charitably inclined.
since you are subject to IRMAA, consider making Roth Contributions up to the next higher IRMAA cutoff without going over.
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Why can’t I find this info. Help me out, cc.
I did a Roth conversion in December. Do I have until 1/10 or 1/15 to pay taxes to avoid a penalty? I ask because Vanguard says that I will get the 1099 by 1/13 and for some reason I thought that I needed to get that in by the 10th.