In the last few years, and especially the last few months, I have learned much more about investing, and I've gradually come around the the Boglehead philosophy (why else would I be here?)
In the past, I've asked my mom about how she's doing with her retirement. I knew she had a decent 401k at work and was investing in Roths, but we never really got into the details. Well, a couple of days ago I was visiting and since I'm now on this Boglehead kick, I asked some more questions. It turns out she rolled over her 401k into an IRA with Edward Jones, and she also opened some Roths there a decade ago that she's steadily contributed to.
My mom is a frugal person but she's not an expert on investing so she just trusts her Edward Jones guy who's she's been seeing for ten years. I asked her what she's paying and she doesn't even know. I looked over all her statements and of course it's hidden. I can see some line items for expenses but it's hard to figure it out. My best guess is she's paying 1.25% - 1.5%.
Her Jones guy has her in 20+ different funds, mostly from the fund families that I've read Edward Jones recommends because they get load kickbacks from the mutual fund companies. All actively managed with ER around 0.75 - 1.25 based on looking up a few.
So, it looks like poor Mom is paying anywhere from 2% - 2.75% when you combine the admin expenses plus the fund ERs.
When I broke this to her and showed her some online calculators of how she's essentially giving this guy $8,000 - $11,000 per year on a $400,000 portfolio and told her she could do just as well at Vanguard but pay $800 or less, and that this could add up to $100,000+ over a decade, she almost froze. I think she just didn't want to know. She's the type who will shop around and pay cash to save a few cents on gas, but then she's getting fleeced by this company.
I then went into my spiel about low-cost index funds (the Boglehead manifesto) and suggested that I could help her setup a better portfolio at Vanguard that could return the same or better but get a 2% boost from lower fees.
But then she's very nervous about transferring out, worried that he's give her the hard sell, feeling like he's been so good to her over the last decade, he's so nice, afraid she'll make a mistake, "I don't know anything about investing," etc.
This Jones guy has really been brainwashing my mother. She was telling me things like, "they check my balances every day to make sure I'm invested right" This is just sickening to me how much my mother has lost to these people and I only wish I knew enough earlier to advise her better.
She's still thinking it over but I want to make sure that I give her the right advice.
First, here's what I know of her portfolio. I didn't ask her too many other questions because we really only started talking about this. She seems open to changing but I don't want to do her a disservice by steering her the wrong way. I'm not a CFP and I know what I don't know (I hope anyway) but I think I can help here get into a better portfolio at Vanguard. Eventually I may post with more specific information but for now I'm just hoping for some general guidance.
Second (below) I'll ask you some questions.
Emergency funds = retired
Debt: None. Mortgage paid.
Long-term-care insurance: I know she has something but I don't know the details.
Tax Filing Status: Single
Tax Rate: xx% Federal xx% State State of Residence: NJ
Age: 70
Desired Asset allocation: 50/50 but open
Intl allocation: x% of stocks
Current portfolio
3xx,xxx in traditional IRA at Edward Jones
90,xxx in Roth IRA at Edward Jones
Taxable
None
Suggested New Portfolio (spread across the tIRA and Roths to get to the right overall AA)
I'm thinking 3/4 -fund portfolio:
Vanguard Total Stock Market Index
Vanguard Total International Market Index
Vanguard Total Bond Index
Vanguard TIPS?
Social Security - started getting this at age 65
Work pension (fixed rate, will not rise with inflation), not sure how much.
She's been retired several years and is getting by on Social Security and pension and does not need to draw from the IRA's.
Questions:
1. She's at 50/50 stock/bond in her IRA accounts. How would you factor her pension into this AA? I was surprised she was this aggressive but she said she's OK with that. Given that she is getting by on SS+pension, maybe that's OK.
2. Is there anything else to consider in transferring from Edward Jones to Vanguard? I know there's a termination fee of around $90. Anything else to consider or watch out for?
3. If she does transfer, should she (a) transfer to cash and then "buy" Vanguard funds, or (b) transfer the funds as they are (so she doesn't leave the market) and then "sell" them to "buy" Vanguard funds?
4. Now that she is 70, she'll need to start doing mandatory IRA withdrawals. Will this need to happen in both the Roth and the tIRA? Should she reinvest the withdrawals back into a taxable account with Vanguard in Total International (I understand this is the most tax-advantaged of the funds I listed above), and then factor that account into her total AA? Should she do this monthly or annually? Is her SS+pension+tIRA count as "earned income" that would let her re-invest her tIRA withdrawals back into Roth, or do you need a "real job" to count as "earned income"? (I'd almost advise her to get a 5-hour-a-week job just so she can invest $6,000 annually back into her Roth IRA).
5. I realize that my mom will get a free CFP consulting session with Vanguard if she transfers in this much money.
6. I'm trying to be helpful, but should I just back off? In searching more on Edward Jones, I happened to find Taylor's advice to someone who was kind of in my situation (although I think my mother's situation is a little simpler) in a different thread:
I guess the difference here is that I'm not trying to do complicated estate planning or life advice that a CFP is better suited to answer. (Which her Edward Jones guy didn't do either--all he did was manage her mutual funds.) I'm just encouraging her to move her assets to a cheaper brokerage and into an index-fund model instead of a smorgasbord of high-fee actively managed funds.It is nearly always a mistake to act as an adviser for family or friends.
Thank you so much for any suggestions and thanks for helping my mother.