Advising retired/divorced sister in law invested with TIAA

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Topic Author
Roadhog
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Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

My sister in law (my brother’s ex) is 69 and has been a teacher her entire life. Not very literate when it comes to investments which are all with TIAA-CREF. At her request I have helped her with tax return for the last two years which led to helping with her investment balances. She welcomes my help. I have been on a conference call with TIAA and her to understand her balances. She is responsible for an adult son (age 35) who is living with her, is rarely employed, and will have difficulty taking care of himself when she passes. She also has two other adult children who are on their own and getting by. Neither she nor the children receive any assistance from my brother who is not really in a position to provide any.

Her annual income is approximately $45k consisting of $19k in social security (spousal benefits based on my brother’s account), $12k from a TIAA SPIA she purchased some years ago, and $14k in teaching income (a small charter school and some tutoring). She does not plan on drawing on her social security benefit until age 70 at which time her benefit should be approximately $35k per year. Not sure of her expenses but things are tight. She will probably always work, if able, because it is fulfilling to her and keeps her mind off some of life's challenges. She is in good health.

Emergency funds: These are fine.

Debt: None, owns her house free and clear valued on Zillow at approximately $344k.

Tax filing status: Head of household

Tax rate: 10% Federal, 0% State

State of Residence: Texas

Portfolio size: ~ mid six figure

Desired asset allocation:
60/40 – equities/fixed income. This was based on a risk assessment/asset allocation process she went through with TIAA in 2019 that I do not have access to. My sense is that, knowing her, this is too much risk for her and I have suggested that we go through another risk assessment/asset allocation process with me on the phone. She has agreed to this.

Balances: (% of total portfolio, name of fund, tkr symbol, exp ratio)
Traditional IRA:
1.10% Nuveen Small-Cap Growth Opps Fund Class I FIMPX 0.98%
1.85% Hartford Emerging Markets Equity Fund Class Y HERYX 1.10%
2.05% Harding Loevner Institutional Emerging Markets Class I HLMEX 1.17%
0.88% TIAA Bank Retirement Sweep Account MMTSQ
1.63% Nuveen NWQ Small Cap Value Fund Class I NSCRX 1.10%
0.22% PIMCO Emerging Markets Bond Fund Class I-2 PEMPX 0.98%
2.39% Victory RS Mid Cap Growth Fund Class Y RMOYX 0.95%
38.01% TIAA-CREF Bond Fund Class I TIBDX 0.30%
1.74% TIAA-CREF High Yield Class I TIHYX 0.36%
10.55% TIAA-CREF International Equity Fund Class I TIIEX 0.48%
10.57% TIAA-CREF Large Cap Growth Fund Class I TILGX 0.41%
1.55% AMG Time Square International Small Cap Fund Class I TQTIX 1.08%
9.24% TIAA-CREF Large Cap Value Fund Class I TRLIX 0.41%
5.77% Wells Fargo Special Mid Cap Value Fund WFMIX 0.81%

403b
12.45% TIAA-CREF Real Estate Account QREARX

Comments:
1. Including a $5k cash balance she has with TIAA (after tax), I calculate her asset allocation as 46% equities, 40% fixed income, 12% real estate i.e. equity, and 2% cash.

2. Her traditional IRA is a managed account and she has given complete discretion to TIAA CREF to manage these funds. In the last 12 months she has paid advisory fees of $3,300. She was not aware of this and was not happy about it. She does not have the right to direct any investments in this account without converting it to an unmanaged account.

3. The 403b account is an unmanaged account and is a residual amount/investment as moneys were transferred out to purchase SPIA’s and to fund her Traditional IRA.

4. 85% of her investments are with TIAA/Nuveen products with high expense ratios and high turnover it looks like to me. Also her account is constantly being tweaked, buying and selling fund positions.

5. I am all in with the Boglehead philosophy and have done very well with our personal finances. If it were me, I would scrap all of this and invest everything for her in the Vanguard Target Retirement Income Fund (30/70 mix) or the Vanguard Wellesley Income Fund. However I don’t want to and shouldn’t be her investment manager and she is not really able to manage her own account. I am not sure what else to do.

6. At a minimum, I think she should sell the QREARX real estate fund (currently showing that 40% of the fund is in office space) in her 403b and merge it with her TIAA IRA – at least it would get some diversification.

Looking for ideas and suggestions. Thanks in advance.
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Duckie
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Duckie »

Roadhog wrote: Wed Jun 16, 2021 5:06 pm Including a $5k cash balance she has with TIAA (after tax), I calculate her asset allocation as 46% equities, 40% fixed income, 12% real estate i.e. equity, and 2% cash.
At age 69 she should be in more fixed income/cash than 42%. I recommend at least 60% fixed.
Her traditional IRA is a managed account and she has given complete discretion to TIAA CREF to manage these funds. In the last 12 months she has paid advisory fees of $3,300. She was not aware of this and was not happy about it. She does not have the right to direct any investments in this account without converting it to an unmanaged account.
She needs to open a TIRA at Vanguard, Fidelity or Schwab and roll the TIAA assets into the new TIRA. Seriously, this is an expensive account and she needs to move it to a new custodian. Not just "unmanage" it, move.
The 403b account is an unmanaged account and is a residual amount/investment as moneys were transferred out to purchase SPIA’s and to fund her Traditional IRA.
Is this 403b from current employment, in which case we need to know the options/fees? Or is it from former employment, in which case she should roll it over and combine it with her TIRA at the new custodian?
If it were me, I would scrap all of this and invest everything for her in the Vanguard Target Retirement Income Fund (30/70 mix) or the Vanguard Wellesley Income Fund. However I don’t want to and shouldn’t be her investment manager and she is not really able to manage her own account. I am not sure what else to do.
Putting an index target-date fund in her TIRA would be suitable. She, or you, would pick it by the AA inside, not the date in the title. Both Vanguard and Fidelity have good index target-date funds.
At a minimum, I think she should sell the QREARX real estate fund (currently showing that 40% of the fund is in office space) in her 403b and merge it with her TIAA IRA – at least it would get some diversification.
If she can roll the 403b into a TIRA she should.
crefwatch
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Re: Advising retired/divorced sister in law invested with TIAA

Post by crefwatch »

It would be appropriate to estimate her first year RMD, which will change her “income” substantially. She needs to consult a lawyer about a special need trust. I can guess that Texas may not have many programs for special needs adults. My town just allowed a charity to build an adult group home in the small downtown business district, but it doesn’t come close to filling the needs of the many parents with such a child.

Why hasn’t she asked to fill out a new risk profile? You could help her with it. Risk assessments are highly regulated and a request cannot be ignored. Does your poster fee total include expense ratios, or just % advisor fees?
Topic Author
Roadhog
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

Thanks, Duckie. Great comments. Confirms what I was thinking.

Thanks, Crefwatch. We have discussed proceeding with another risk assessment/asset allocation process with TIAA with my assistance. She hasn't brought me into the loop so much on estate planning, although we fixed her beneficiary designations on her accounts and I am prodding her to complete her will. Provisions for her live-in son are an ongoing gentle conversation my wife and I have with her. I'll take a look at RMD's.
retiringwhen
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Re: Advising retired/divorced sister in law invested with TIAA

Post by retiringwhen »

I don't have much to add, but at her point in life, if she moves to Vanguard, the LifeStrategy Funds are good alternative to a Target Date fund. Just pick the fund with the target fixed income rate suitable for he retirement and forget about it. (remember to calculate that target with her existing annuities in place.)

We have been using them for trusts mostly and find them to be a major simplification.

I am slowly coming around to longinvest's one fund strategy for retirement as I know my wife would hate to manage our portfolio as it is.
Topic Author
Roadhog
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

Thanks, Retiringwhen, for pointing me to the Life Strategy Funds. Hadn't thought of these. They may be a really good fit for her.
ivgrivchuck
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Re: Advising retired/divorced sister in law invested with TIAA

Post by ivgrivchuck »

Roadhog wrote: Thu Jun 17, 2021 11:40 am Thanks, Retiringwhen, for pointing me to the Life Strategy Funds. Hadn't thought of these. They may be a really good fit for her.
Agreed. They seem to be a really good fit for this situation. 40/60 allocation sounds about right in this situation...
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
tibbitts
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Re: Advising retired/divorced sister in law invested with TIAA

Post by tibbitts »

Roadhog wrote: Wed Jun 16, 2021 5:06 pm ...
6. At a minimum, I think she should sell the QREARX real estate fund (currently showing that 40% of the fund is in office space) in her 403b and merge it with her TIAA IRA – at least it would get some diversification.

Looking for ideas and suggestions. Thanks in advance.
Ironically some people are looking for ways to acquire this relatively unique fund. I too am not sold on the wisdom of management, ever since they implemented their bi-coastal strategy - but realistically I'm not an expert on real estate, and you're probably not either. So I hang in there with my small allocation (probably a similar percentage to what you're describing) to TIAA Real Estate.

Overall the managed portfolio looks like a lot of other managed portfolios, and I doubt there's anything sinister about it. High fund turnover in funds doesn't matter unless you're paying sales charges, which I'm assuming aren't in play here. You could save the management fee, and TIAA does the risk tolerance thing, and quite a bit of planning that I've found valuable actually, for "free." But if you save the management fee and move the funds out of TIAA, who will this person call when they want to talk about their finances for whatever unanticipated reason? And don't say they'll call you, because that's not a plan - you want there to be some sort of institutional entity they can contact, since people are transient. Like I said, with TIAA you can get more attention than with most firms for free, without any sales pressure in my experience at least.
JDave
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Re: Advising retired/divorced sister in law invested with TIAA

Post by JDave »

WHY are you advising your brother's ex-wife? Sounds like a recipe for disaster to me. You may get no credit if everything goes right, and all the blame if everything goes wrong. Are you looking to marry her?
JohnDoh
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Re: Advising retired/divorced sister in law invested with TIAA

Post by JohnDoh »

$.02 from someone you never met, on the internet.

1) Don't panic. I'd be leery of pulling any triggers before everything thought through thoroughly. If necessary to go to cash in whole or in part, do it at TIAA while things are figured out.

2) Although I really think the managed IRA is a problem of sorts, being at TIAA is not a problem. Indeed, all else equal I'd try to solve the problem(s) by staying at TIAA as an institution, though perhaps with different "advisors".

3) The 2 unique TIAA investments are TRADITIONAL Annuity ("TRAD") and TIAA REAL ESTATE ACCOUNT ("TREA). They, individually and collectively, are worth staying at TIAA for. It is possible to open a "brokerage window" in the IRA (and possibly also the 403b), which would all the purchase of Vanguard and other ETFs. The overall portfolio would then consist TRAD and/or TREA plus the brokerage window allocated as you both decide.

4) You don't mention TRAD at all I don't think. The TRAD in the IRA is probably not desirable at this point but it may be that the 403b allows access to a liquid version of TRAD which could certainly be desirable. In any case, one would need to understand all this in order to make a fully informed decision. It's not hard, but it does take a little education, much of which you can get here and also at Morningstar TIAA forum.

5) In this connection it becomes important to know what "403b" account really means here. Is it literally one account/contract? Need to know the number of contracts and their types (e.g. GRA, GSRA, RC, RCP, etc.) and the investment options within. In some cases the 403b has better investment options than IRA and will accept money IN from IRA. In that case, it may be possible and desirable to not open the IRA brokerage window but consolidate in 403b and allocate there.

6) Personally, I think TREA is GREAT and a reason for anyone, but especially a retired person to stay at TIAA. The only real question, from my POV, is how much to allocate. 10% is not considered unreasonable and I can see the case for more. Check out TREA threads here and at Morningstar TIAA forum.

7) If consolidating in the 403b is not an (good) option, then can consolidate in the IRA and hold TREA there. See #3 above.

Good luck.
tibbitts
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Re: Advising retired/divorced sister in law invested with TIAA

Post by tibbitts »

I transferred from my Vanguard IRA into a TIAA 403b to get access to Traditional at 3%.

I'd say TIAA's limit at $150k for Real Estate (you may be able work around it in various ways, but at least the theory of it) probably isn't a bad thing for most of us, because it's a relatively concentrated investment with non-trivial management risk. Overall I'm not sure it shouldn't have performed better than it has over the years, but it seems it's usually added a little return beyond Traditional with considerable (if somewhat gradual) volatility. I'd caution people looking at Real Estate not to put much if any weight into what may have been a one-time-ever timing event that might have turned out to be somewhat of a free lunch back during the financial crisis.
Topic Author
Roadhog
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

Thanks, Tibbits. This is the essence of my hesitancy to do anything which is the way I am leaning currently. Although it might be expensive, it is getting the job done independently and in a way that she is familiar and comfortable with.
Topic Author
Roadhog
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

Thanks JohnDoh. She is currently receiving annuities in the amount of $12k/yr. I referred to them as TIAA SPIA's but they must be the TRAD annuities you refer to in your post. Probably going to suggest another risk/allocation assessment from TIAA and continue to monitor. I am somewhat concerned that the QREARX is 40% office space and is outsized slice compared to the rest of her portfolio. I'll take a look at the other choices in her 403b.
crefwatch
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Re: Advising retired/divorced sister in law invested with TIAA

Post by crefwatch »

I already posted, but had these additional thoughts:

I agree that the slice and dice TIAA portfolio is typical of their managed accounts. It's partly so TIAA can't be accused of reckless concentration, while getting them some Expense Ratio income. The question is whether you want to replace (with Yourself, I mean) the TIAA management? Not arguing one way or the other.

Make sure that she is the only beneficiary of the TIAA Traditional annuity. Could she possibly named the disabled son as well?

Having claimed SS at 68 1/2 myself, I'd point out that she could reduce stress without reducing her income that much by claiming immediately. I admire her fortitude in putting off claiming so long, while under financial stress. But it's not that big a decision at 69!

I wouldn't obsess about TIAA Real Estate. It's not a "reckless" choice, and $50,000 in a $500,000 qualified space is not crazy. But are you and she focusing on "current income"? It's a horror to tell you to learn about TIAA (smiley face), but if the 403(b) happens to offer TIAA Traditional, she could switch to that and maybe annuitize it, or take the IPRO option (current interest payout only, no risk to principal, principal saved for heir/heirs.) And some 403(b)s have TIAA Traditional guarantee of 3% interest. The IPRO can later be changed to a life annuity, and her life payout might increase (I mean if delayed 5 or 10 years) because of interest rate changes and her (then) older age. Yes, this is complicated. But it's part of why TIAA is not usually a "rip-off" of the customer.

Note that if you roll the 403(b) over to her IRA at TIAA, there is NO possibility that she can get 3% right now from TIAA Traditional. The guarantee in an IRA is 1%, and that's all it's paying right now for new investments.

Warning: IANAL, but TIAA does not give as many liquidation decisions to a Trust or Estate inheritor as it gives to a natural person or persons! They don't take money away, I'm just talking about, say, retaining TIAA Traditional at higher, older, interest rates rather than cashing it out involuntarily. No loss of principal!
Last edited by crefwatch on Fri Jun 25, 2021 7:47 am, edited 1 time in total.
talzara
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Re: Advising retired/divorced sister in law invested with TIAA

Post by talzara »

Roadhog wrote: Wed Jun 16, 2021 5:06 pm 6. At a minimum, I think she should sell the QREARX real estate fund (currently showing that 40% of the fund is in office space) in her 403b and merge it with her TIAA IRA – at least it would get some diversification.
Roadhog wrote: Wed Jun 23, 2021 8:14 am I am somewhat concerned that the QREARX is 40% office space and is outsized slice compared to the rest of her portfolio.
You've said this twice, so you must very concerned about investment in office space.

The TIAA Real Estate Account appears to have concentrated exposure to office space because it only invests in traditional real estate.

The Vanguard Real Estate Index Fund has a very similar allocation for traditional real estate investments. However, Vanguard invests 53% of the fund in specialty REITs, real estate management companies, diviersified REITs, and the other Vanguard real estate fund. Vanguard also classifies medical offices as healthcare instead of office space.

If you only look at Vanguard's traditional real estate investments and include medical offices, then Vanguard invests 31% in office space. TIAA invests 38% in office space. In addition, Vanguard has 6% in hotels, and TIAA has 0% in hotels.

TIAA is investing in commercial real estate at approximately the same weight as Vanguard, but they've swapped all the hotels for offices.
Topic Author
Roadhog
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Re: Advising retired/divorced sister in law invested with TIAA

Post by Roadhog »

Thanks to all. Great and informed comments.

Roadhog
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