Retirement Advice

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qfinanceq
Posts: 2
Joined: Sat Nov 18, 2017 7:33 am

Retirement Advice

Post by qfinanceq »

Hello all,

I am seeking advice for my father who is recently retired. Neither of us know anything about investing or what steps to take. He worked very hard over his life and has his pension, social security and about 1M in his 401k. He is currently 68 and has been looking for financial advice. I'm very afraid that he's going to be taken advantage of and would really appreciate some suggestions as to what is optimal to do at this stage. Financial advisors are looking for 1% fees and want him to buy into annuities and insurance.

If anyone can provide some general guidance and what steps to take next it would be extremely appreciated. Even a link or book to read that talks about after retirement finances would be super helpful.

I apologize if this is posted in the wrong area or disallowed here. If anyone needs followup info I'll do my best to provide.
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Watty
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Re: Retirement Advice

Post by Watty »

There is a Getting started Wiki that would be good to look at.

https://www.bogleheads.org/wiki/Getting_started

The Boglehead books also are very readable and are geared for people without a lot of financial background

https://www.amazon.com/s/?search-alias= ... Bogleheads

He is right to be leary of financial advisors. The vast majority of them are just salespeople that will put people into terrible investments to make money off of then. The 1% annual fee is often just the tip of the iceberg since they will often then put you into investments that have much higher fees. Even 1% is too much. There are all sorts of qualifications and assumptions but academic studies have show that someone starting a 30 year retirement can only safely spend around 4% of their portfolio the first year. If you pay an advisor 1% that is 25% of your income for that year.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates
krow36
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Location: WA

Re: Retirement Advice

Post by krow36 »

The easiest and least expensive way for your father to get financial advice would be for him to post on this forum. Using Laura's format for asking questions will give folks the background to be most helpful. Asking Portfolio Questions

For a book on the subject, I recommend How to Make Your Money Last: The Indispensable Retirement Guide, by Jane Bryant Quinn. It's very complete and well-written, published in 2016 and available in paperback and as an eBook.
delamer
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Re: Retirement Advice

Post by delamer »

Here's a link to books recommended on this forum: https://www.bogleheads.org/RecommendedReading.php. They will provide a good background to help with decisions.

If your father has accumulated $1 million in his 401(k), it is likely that he has some of that invested in stocks and bonds. Do you know how he has made his investment decisions for it? In most cases, he can leave his money in his 401(k) either indefinitely or at least until he has figured out where he wants to move his money.

Vanguard has a Personal Advisor Service that charges 0.3% (so much less than the typical 1% your dad has been quoted) to manage a low-cost portfolio. It will also do the legwork to move your dad's assets out of his 401(k) and to Vanguard. And no push to buy annuities or insurance that probably benefit the finance guy more than your dad.

https://investor.vanguard.com/advice/personal-advisor

In your dad's place, I'd do some reading and then contact Vanguard. He can use its advisors until he is comfortable managing on his own or keep the advisor (and fee) if he prefers.
Last edited by delamer on Sat Nov 18, 2017 1:56 pm, edited 2 times in total.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
livesoft
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Re: Retirement Advice

Post by livesoft »

You should both read Jane Bryant Quinn's book: How to Make Your Money Last
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dwickenh
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Re: Retirement Advice

Post by dwickenh »

krow36 wrote: Sat Nov 18, 2017 1:40 pm The easiest and least expensive way for your father to get financial advice would be for him to post on this forum. Using Laura's format for asking questions will give folks the background to be most helpful. Asking Portfolio Questions

For a book on the subject, I recommend How to Make Your Money Last: The Indispensable Retirement Guide, by Jane Bryant Quinn. It's very complete and well-written, published in 2016 and available in paperback and as an eBook.
That is a great book at retirement to help instruct the retiree on all of the different moving parts to think about. It simplified the whole process in my mind. She also gives some great simple investing advice.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Dandy
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Re: Retirement Advice

Post by Dandy »

I would suggest going with him to a fee only financial adviser -- make sure he/she doesn't sell products. There is a lot to go over e.g. His income, current expenses, size and allocation of his portfolio, his current draw down dollars and percentage, his health insurance plan(s), risk tolerance, home value/equity/or rent, an estimate of his risk tolerance, etc.

Having someone that is trained and works only for a one time fee will get your father on the right track. Before implementing the adviser's suggestions you can put them on this forum and get some great feedback. The actual investment/annuity recommendations will likely be rather simple if the adviser does a good job.
johnra
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Re: Retirement Advice

Post by johnra »

Not all people enjoy financial management and realize that this forum is mainly such folks . But to be a do-it-yourselfer takes a lot of time to read, comprehend and absorb and you and your dad shouldn't feel bad if you don't want to do it yourselves. If you don't want to do it yourself, then you are unlikely to go wrong with one of the wealth and asset management programs at Schwab, Fidelity or Vanguard -- with $1M in assets to manage, then the fee ought to be ~0.5%, not too bad and you will be in good hands.
Topic Author
qfinanceq
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Re: Retirement Advice

Post by qfinanceq »

As a follow up to some comments and questions. I believe all of his assets are in a 401k thrift savings plan in the C fund that follows the S&P. As far as I know there are no other investments made.

I deeply appreciate the advice and comments made thus far.
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Watty
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Re: Retirement Advice

Post by Watty »

qfinanceq wrote: Sat Nov 18, 2017 7:34 pm As a follow up to some comments and questions. I believe all of his assets are in a 401k thrift savings plan in the C fund that follows the S&P. As far as I know there are no other investments made.

I deeply appreciate the advice and comments made thus far.
That would be way too risky for him if that is correct. :shock:

The good news is that the stock market is near an all time high so it would have worked out well for him. Sometimes luck trumps skill.

It is hard to give good recommendations for him without knowing all the details but a generic vanilla one-size-fits-all suggestion would be to use the lifecycle income fund which is designed for retired people while he figures out a long term plan.

https://www.tsp.gov/InvestmentFunds/Fun ... ncome.html

When you are reading about investing these are called target date funds in non-government IRA's and 401k's so the terminology you see may be a bit different.

If that was correct then if it were me I would move the money ASAP, like Monday.

When he learns more he can change that later if he wants to.

Not that it would make it the right investment for him but when I retired a few years ago I moved almost all my funds into the Vanguard Target Date 2015 fund so that it would be easier to manage when I get older or if my less financially knowledgeable spouse has to manage it some day. People sometimes think of these as a dumbed down "Investing for Dummies" choice but in the right situation they are an excellent choice. The main reason not to use them are if you also have money invested in taxable accounts where you need to worry about taxes, or if your 401k does not have good low cost target date funds.
krow36
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Re: Retirement Advice

Post by krow36 »

The Federal TSP is an outstanding provider of a 401k type plan. He should shift his stock to bond ratio from 100% stocks to an asset allocation that is less risky. The L2020 has an AA of 36% stocks to 64% bonds which is much more appropriate for someone retired, than what he is in now. https://www.tsp.gov/InvestmentFunds/Fun ... L2020.html
The L2020 fund would help protect against a sudden downturn in the stock market. This change would have no tax consequences and can be changed again later after he and you learn more about investing. He should not spend any time with annuity or insurance salespersons.
Dave55
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Re: Retirement Advice

Post by Dave55 »

livesoft wrote: Sat Nov 18, 2017 1:53 pm You should both read Jane Bryant Quinn's book: How to Make Your Money Last
Excellent recommendation.

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
NancyABQ
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Re: Retirement Advice

Post by NancyABQ »

krow36 wrote: Sat Nov 18, 2017 9:24 pm The Federal TSP is an outstanding provider of a 401k type plan. He should shift his stock to bond ratio from 100% stocks to an asset allocation that is less risky. The L2020 has an AA of 36% stocks to 64% bonds which is much more appropriate for someone retired, than what he is in now. https://www.tsp.gov/InvestmentFunds/Fun ... L2020.html
The L2020 fund would help protect against a sudden downturn in the stock market. This change would have no tax consequences and can be changed again later after he and you learn more about investing. He should not spend any time with annuity or insurance salespersons.
I agree with this general suggestion, but it could be that he could want a more aggressive Asset Allocation (as much as 60% stock/40% bond). A lot depends on whether the pension and social security cover most of his expenses, or whether he will be needing the money from the 401K to fund necessary expenses.

Filling out the portfolio info as suggested in the post at the top of this forum, would be good (just edit your first post using the pencil icon). This will help you think about the questions you should be thinking about, and also will help the people here give better advice.

Since there are no tax consequences for changing the allocation in a 401K I would agree that fixing it quickly to a more conservative asset allocation is best. Like do this on Monday.... Then do more research and you can tweak it from there.
basspond
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Re: Retirement Advice

Post by basspond »

First question would be how much of his expenses will be covered by SS and pension?

Build a portfolio that has enough stable funds to cover any differences for at least 4 years and invest the rest in equities 40/40/20 (SP500 / Small cap / foreign). Good luck and congratulations to your dad! And by doing some research you will in be better shape with your investments.
InMyDreams
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Re: Retirement Advice

Post by InMyDreams »

Dandy wrote: Sat Nov 18, 2017 3:25 pm I would suggest going with him to a fee only financial adviser -- make sure he/she doesn't sell products.
I have used (and continue to update annually with) a fee-only financial planner. Please note that it isn't easy to find one that doesn't also have "wealth management" services, charging some percentage of assets under management.

It's a long distance (internet & phone) relationship.

I also recommend Jane Bryant Quinn's book. Even if you do get a financial planner.
delamer
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Re: Retirement Advice

Post by delamer »

basspond wrote: Sun Nov 19, 2017 7:47 am First question would be how much of his expenses will be covered by SS and pension?

Build a portfolio that has enough stable funds to cover any differences for at least 4 years and invest the rest in equities 40/40/20 (SP500 / Small cap / foreign). Good luck and congratulations to your dad! And by doing some research you will in be better shape with your investments.
This is good advice. The TSP is an outstanding, very low-cost plan. There is no reason for your father to move any funds out of the plan in the short-term.

Does he have a spouse? If not, he should become familiar with the TSP rules for non-spouses inheriting TSP funds (they can't roll them over to an IRA). But that is an estate planning concern, not specifically an investment concern. However, he should see an estate attorney for a will, medical directives, etc. if he has not already.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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