The Intersection of FIRE and Disney

[TarraLee]

Hi all

I’ve dropped in on this thread here and there. I enjoy reading and learning about FI and dream of RE but am more focused on getting to the FI vs feeling like I need to stop working.

We recently starting talking with a fiduciary and I’m struggling with the costs. Currently, my DH and I have accounts with Vanguard 401k, IRA and Roth. We’d move everything to the advisor but the 401k. The fiduciary does give life planning and financial advice around insurance, long term care etc etc but I am still not sure if it’s “worth” it. Of course that’s in addition to advice around investments.

Vanguard has very low costs. The fiduciary, until we have much higher investments with him, charges between 1-1.5%
is this a normal type of fee for an advisor that does not get commissions?

For reference
DH and I are 39
We would move around $125k to the fiduciary’s care. Our balance that will stay in Vanguard is a multiple of what we will move.
We are planning to invest $500-$1k per month outside of 401ks
We may receive significant inheritances in next 10 years which would bring the fee down on a percentage basis which is one reason we sought out the advisor now- to have someone trusted when we are dealing with more complex situations

We’ve never really had a financial advisor before. I’m a serial thrift, which is probably why this is giving me heartburn

Thank you for your input!

We're similar ages, similar circumstances, and decided to follow a Bogleheads approach, which is basically to minimize fees and buy and hold the market long term. You might find the Boglehead's forums (not quite as friendly as the DIS but certainly informative and helpful) and Wiki pages worthwhile.

ETA: @SouthFayetteFan and I were posting at the same time. His post better outlines why to do this, beating the market by 1.5% or more is not happening very often. The Bogleheads forums/approach will give you more about the "how", SFF gave the "why" and its a good one.

 

[SouthFayetteFan]

We're similar ages, similar circumstances, and decided to follow a Bogleheads approach, which is basically to minimize fees and buy and hold the market long term. You might find the Boglehead's forums (not quite as friendly as the DIS but certainly informative and helpful) and Wiki pages worthwhile.

ETA: @SouthFayetteFan and I were posting at the same time. His post better outlines why to do this, beating the market by 1.5% or more is not happening very often. The Bogleheads forums/approach will give you more about the "how", SFF gave the "why" and its a good one.

Love it! Bogleheads is great! Just pick the broad based index funds that best fit your strategy. Figure out how much you want in equities. And put all of your money to work for you!!

 

[Mome Rath]

Yes, we were always taught not to pay any unnecessary fees. Honestly, I don't trust most advisers when it comes to money, but that is if you have the time and the inclination to watch and manage your own accounts. The only major thing is to always know what your money is in and how it works. For different issues, we split it out between professionals; accountants, lawyers, etc...

 

[Starport Seven-Five]

Hi all

I’ve dropped in on this thread here and there. I enjoy reading and learning about FI and dream of RE but am more focused on getting to the FI vs feeling like I need to stop working.

We recently starting talking with a fiduciary and I’m struggling with the costs. Currently, my DH and I have accounts with Vanguard 401k, IRA and Roth. We’d move everything to the advisor but the 401k. The fiduciary does give life planning and financial advice around insurance, long term care etc etc but I am still not sure if it’s “worth” it. Of course that’s in addition to advice around investments.

Vanguard has very low costs. The fiduciary, until we have much higher investments with him, charges between 1-1.5%
is this a normal type of fee for an advisor that does not get commissions?

For reference
DH and I are 39
We would move around $125k to the fiduciary’s care. Our balance that will stay in Vanguard is a multiple of what we will move.
We are planning to invest $500-$1k per month outside of 401ks
We may receive significant inheritances in next 10 years which would bring the fee down on a percentage basis which is one reason we sought out the advisor now- to have someone trusted when we are dealing with more complex situations

We’ve never really had a financial advisor before. I’m a serial thrift, which is probably why this is giving me heartburn

Thank you for your input!

I think this depends a lot on how involved you want to be. 1-2k isn't a lot of money if you want to be completely hands off with your finances but if you're checking in a thread like this... it's likely you could do exactly what that advisor is doing.

We have never done it, but if we ever got to a point where we thought we needed a financial advisor we would seek out one that does it for a flat fee instead of percentage model. I find the percentage based ones kind of slimy because you know they're not putting in THAT much more work if your account is 10x the size. We would also only do it as a financial planning type of thing instead of long term management of our assets as that is something I would like to retain control of.

 

[RamblingMad]

Love it! Bogleheads is great! Just pick the broad based index funds that best fit your strategy. Figure out how much you want in equities. And put all of your money to work for you!!

The problem with the BH way is their dependence on bonds always being negatively correlated to equities. With rates super low right now, this isn't always the case, and you're likely to earn a negative real return with bonds right now. Their approach made sense before bonds starting having a negative real yield. Now, the big question is: what do you replace bonds with?

 

[Mome Rath]

The biggest takeaway from the Boglehead boards, to me, is that it's all about risk, and our tolerance. That's the main idea; allocation based on our own tolerance for risk. If you have an extremely high tolerance, then sink everything into equities. If not, you have to decide a low risk balance, and find a place outside of equities for some percentage of your money. Bonds reduce volatility.

 

[TarraLee]

Rambling mad, you make a good point about bond yields. We are treating our mortgage as a negative bond that’s returning our mortgage rate for some part of our non equity holdings, and using total bond index and CD ladder for the rest for now. But, I have the same question you do as to what to do with bonds.

Still don’t think a % AUM advisor is going to make me more than 1.5% more than I’d get otherwise, and they’d likely have a part of our assets in bonds too. I’d be willing to pay an hourly rate advisor for answers to the bond question if a larger % of our portfolio was in bonds or we were closer to retirement though,

 

[TarraLee]

The biggest takeaway from the Boglehead boards, to me, is that it's all about risk, and our tolerance. That's the main idea; allocation based on our own tolerance for risk. If you have an extremely high tolerance, then sink everything into equities. If not, you have to decide a low risk balance, and find a place outside of equities for some percentage of your money. Bonds reduce volatility.

The biggest takeaways from BH for me are— stay the course, and require value from your money. Stay the course— don’t chase every up or panic in every down, make good consistent small decisions over time. Dollar cost average into the market and hold, and don’t pay fees to do it. This is solid advice for most people most situations, and I think it is as helpful to investors as DR is to folks struggling to get out of CC debt. Simple and effective, efficient.

Require value from your money— there’s a general feel of spend wisely and plan your spending on BH that is kind of like the Budget Board here.

BH and the DIS budget board are the forums I read most often, and I learn so much from both!

 

[LeslieLou]

Thank you for all the advice. The idea of trying to beat the market by the 1.5% has been my exact concern. Seems unlikely. And while a flat fee person might be about the same now or more, the % basis really hurts as the portfolio grows.
I may seek out a flat fee based advisor for a point of comparison, but also do some more research to see if I can get more comfortable myself. Time is my biggest concern as I have a demanding job and busy family. I just opened an investment account with ally also tho I don’t like that I can’t buy partial shares. We have a savings account w Ally but if I end up somewhere else it’s not that big of a deal.
I feel mostly concerned about making the right decisions from a tax perspective, but maybe I can get what I need from a tax Specialist (attorney?) if anyone knows someone in central Ohio please feel free to message me.

a couple other notes about us:
Target FI 50
House payoff 49
Kids thru college 49
Emergency fund - 6 months bare expenses done
HSA 6k but we have free healthcare now so I can’t add to it due to the plan. Balance is invested.
401k saving 12% 4% Roth 8% Traditional (match 4%)
Company retirement account 3% annually
Company ESOP typically .5%
IRA and Roth (not actively adding to)
Husband 401k traditional (higher expense ratios not at Vanguard) 7% with 2.25% match
College funds - good enough between 2 and cash flow to cover state school tuition. Expect both kids to graduate high school with an associates degree also. Saving about $2400/yr. My parents contribute some also
Paying extra on the house tho interest is 2.6%. Want this big Bill gone. Extra 5200/yr going here

We also have some whole life policies I need to have evaluated. Does anyone know of an online tool? I forget the analysis name the advisor said he’d run to indicate keep or sell...

have another approx 12k-20k per year to put somewhere (hence the ally account) and leaning toward non-retirement so we could use it in our 50s if needed or desired. After we get through some other objectives have more to sock away.

I think our savings rate is 50%ish
Any thoughts or advice welcome!

 

[Rob Huff]

Thank you for all the advice. The idea of trying to beat the market by the 1.5% has been my exact concern. Seems unlikely. And while a flat fee person might be about the same now or more, the % basis really hurts as the portfolio grows.
I may seek out a flat fee based advisor for a point of comparison, but also do some more research to see if I can get more comfortable myself. Time is my biggest concern as I have a demanding job and busy family. I just opened an investment account with ally also tho I don’t like that I can’t buy partial shares. We have a savings account w Ally but if I end up somewhere else it’s not that big of a deal.
I feel mostly concerned about making the right decisions from a tax perspective, but maybe I can get what I need from a tax Specialist (attorney?) if anyone knows someone in central Ohio please feel free to message me.

a couple other notes about us:
Target FI 50
House payoff 49
Kids thru college 49
Emergency fund - 6 months bare expenses done
HSA 6k but we have free healthcare now so I can’t add to it due to the plan. Balance is invested.
401k saving 12% 4% Roth 8% Traditional (match 4%)
Company retirement account 3% annually
Company ESOP typically .5%
IRA and Roth (not actively adding to)
Husband 401k traditional (higher expense ratios not at Vanguard) 7% with 2.25% match
College funds - good enough between 2 and cash flow to cover state school tuition. Expect both kids to graduate high school with an associates degree also. Saving about $2400/yr. My parents contribute some also
Paying extra on the house tho interest is 2.6%. Want this big Bill gone. Extra 5200/yr going here

We also have some whole life policies I need to have evaluated. Does anyone know of an online tool? I forget the analysis name the advisor said he’d run to indicate keep or sell...

have another approx 12k-20k per year to put somewhere (hence the ally account) and leaning toward non-retirement so we could use it in our 50s if needed or desired. After we get through some other objectives have more to sock away.

I think our savings rate is 50%ish
Any thoughts or advice welcome!

We've got some similarities to your situation with the big exceptions of the free healthcare (jealous) and the extra $12K-$20K hanging around (jealous again).

It's awfully tough to justify keeping a whole life policy in most situations unless you're worried about having a taxable estate.

I investigated the mortgage again this week. We're at 2.5% but I wanted to see if there was a refi that could get it even lower with minimal cost. I laughed at myself today when I appreciated the absurdity of the exercise.

I had a general question for the BB that is also wonderfully applicable here. Is it possible to roll just the Roth portion out of a 401(k) into a Roth IRA, leaving only the traditional portion of the 401(k) behind? I'd love to get the Roth portion out of the 401(k) and sequestered in the Roth IRA with the other Roth assets.

I'm not willing to do a conversion of the full 401(k) balance, so that's not an option. I'm also not going to shed too many tears if the end result is that I have to have some portion of my 401(k) be tax-free at retirement.

For what it's worth, I'm in my 30s, so five-year rules don't concern me at this point.

 

[LeslieLou]

We've got some similarities to your situation with the big exceptions of the free healthcare (jealous) and the extra $12K-$20K hanging around (jealous again).

It's awfully tough to justify keeping a whole life policy in most situations unless you're worried about having a taxable estate.

I investigated the mortgage again this week. We're at 2.5% but I wanted to see if there was a refi that could get it even lower with minimal cost. I laughed at myself today when I appreciated the absurdity of the exercise.

I imagine we will be hard pressed to make another refi pencil. We are paying less now for our home with extra dollars applied than our first major home purchase of a similar value. That 2% redux is magic.

On the whole life- it’s a policy my parents bought when I was little. Some details:
Insurance value 138k
Premium of 490 is more than covered by the almost 600 dividend
Cash value is 29k

I assume I’d cash it in/surrender - is there any way to avoid paying taxes in the earnings?

At the low value I don’t think the fact that it’s not taxable will help my heirs much

 

[Rob Huff]

I imagine we will be hard pressed to make another refi pencil. We are paying less now for our home with extra dollars applied than our first major home purchase of a similar value. That 2% redux is magic.

On the whole life- it’s a policy my parents bought when I was little. Some details:
Insurance value 138k
Premium of 490 is more than covered by the almost 600 dividend
Cash value is 29k

I assume I’d cash it in/surrender - is there any way to avoid paying taxes in the earnings?

At the low value I don’t think the fact that it’s not taxable will help my heirs much

Hmmm. Given those details, I'd probably leave the LI policy alone provided that the premium amount is locked in for life. Just ignore it and your descendants will thank you when the death benefit falls into their laps!

 

[georgina]

I had a general question for the BB that is also wonderfully applicable here. Is it possible to roll just the Roth portion out of a 401(k) into a Roth IRA, leaving only the traditional portion of the 401(k) behind? I'd love to get the Roth portion out of the 401(k) and sequestered in the Roth IRA with the other Roth assets.

I'm not willing to do a conversion of the full 401(k) balance, so that's not an option. I'm also not going to shed too many tears if the end result is that I have to have some portion of my 401(k) be tax-free at retirement.

Should be, but it will probably depend on your plan provider. I haven't kept up with the rules as we are retired. There were some changes a few years ago, my DD's company partnered with Fidelity so that she could put away after-tax money in the company savings plan and then periodically transfer it out to a Roth at Fidelity, paying tax on any earnings up to that point.

 

[Rob Huff]

Should be, but it will probably depend on your plan provider. I haven't kept up with the rules as we are retired. There were some changes a few years ago, my DD's company partnered with Fidelity so that she could put away after-tax money in the company savings plan and then periodically transfer it out to a Roth at Fidelity, paying tax on any earnings up to that point.

My 401(k) (the split Roth/traditional account) is through Fidelity, so I'm going to reach out to them to see if they have any idea about this.

 

[Sarah'sMomfrom PA]

I turned 64 last week and currently participate in my hospital's 401 K.....I currently contribute 7% to the 401 K and receive a company match of 3.5%....how worthwhile would it be to switch from the traditional 401 K to a Roth 401K at this point in my working career. I hopefully plan on working another 3-5 years and this account is not our main retirement vehicle. We have 2 small Roth's outside of work; several annuities; 401 K and IRA's but with only a short 3-5 year working window, is it even worth it to do this? I realize that I will have more money taken out of my paycheck every 2 weeks to make up of not having the pre tax break. Thanks in advance!

 

[Hoosier John]

I'm kinda guessing your income at the hospital puts you in a higher tax bracket now than in retirement, however having some Roth gives you flexibility to adjust retirement income, as you are forced to take Minimum Required Distributions from tax deferred (traditional) 401k's, and can take as much or little Roth as you want. I'm a fan of putting as much in Roth as you can afford (paying taxes now). That said, I'm mostly all traditional 401k, yet all Roth IRA.

 

[mgarbowski]

I turned 64 last week and currently participate in my hospital's 401 K.....I currently contribute 7% to the 401 K and receive a company match of 3.5%....how worthwhile would it be to switch from the traditional 401 K to a Roth 401K at this point in my working career. I hopefully plan on working another 3-5 years and this account is not our main retirement vehicle. We have 2 small Roth's outside of work; several annuities; 401 K and IRA's but with only a short 3-5 year working window, is it even worth it to do this? I realize that I will have more money taken out of my paycheck every 2 weeks to make up of not having the pre tax break. Thanks in advance!

As @Hoosier John noted it depends in part on your current and expected future tax rates. Another important factor is how long you can defer withdrawing from the Roth account. IMO that is more important than how long your working window is. If you can defer withdrawing from the Roth for a long time it is more valuable. Generally, the strategy is to start by living off of pension [if any] plus SS [when that starts which is its own complicated decision] plus money in regular taxable accounts and in your case presumably your annuities (though I really have not studied up on annuities so ignore anything I say even tentatively about them). If you can afford to do so, it generally helps not to withdraw from standard tax deferred accounts until required by minimal distributions regulations, because those distributions usually have the highest tax obligations connected to them. Roth style accounts should be the last thing you touch, and even better, be passed on to heirs if possible. But some people will not have enough money from other sources to defer using the Roth that late. Depending on exactly where that falls along the time continuum has a big effect on the equation.

 

[Sarah'sMomfrom PA]

I am an administrative assistant at the hospital (been here for 40 years) but what I don't understand is if I work for 3-5 more years and contribute to the Roth 401 K, I could just leave the money in there (and not have to do the RMD) for at least 5 years (until I am 69) but technically, if I don't need the money, I can just leave it for my beneficiaries?

 

[Sarah'sMomfrom PA]

My husband (who is already retired at 74) and I should have enough saved with retirement funds (401K's and IRA's and Annuities) plus Social Security to allow me to not touch the Roth IRA but I guess my question is that I would only be contributing for the next 3-5 years so would it be worth it to do this and I am leaning on the side of yes, it would be worth it to do this! Thanks for the insight.

 

[mgarbowski]

I am an administrative assistant at the hospital (been here for 40 years) but what I don't understand is if I work for 3-5 more years and contribute to the Roth 401 K, I could just leave the money in there (and not have to do the RMD) for at least 5 years (until I am 69) but technically, if I don't need the money, I can just leave it for my beneficiaries?

Check with a tax professional.
I'm not a tax professional or advisor.
That said, my understanding is you have to take RMDs from Roth 401ks but not from Roth IRAs.
But, you can in most cases roll your Roth 401k into a Roth IRA after you leave your job.
Also any withdrawal from a Roth 401k made within 5 year of your first contribution is subject tax and [maybe?] penalty.
And all of this is subject to change at any time.