Quick preface: My sister’s husband passed away suddenly. I’m helping her get her finances in order, as he had handled nearly everything money-related. (I have her blessing to create this portfolio review, and she trusts me entirely.) He had a good job in a good company. She is the beneficiary on some of his accounts. For those accounts on which a beneficiary was not named, the husband has a will which left all assets to her. As such, all of the accounts listed below will eventually be hers when the dust settles.
Problem: Seeing as how she has very little knowledge of investing, it is difficult to put down numbers for “Desired Asset Allocation” and international. However, upon her retirement, she will be receiving his company pension (a defined benefit plan), which will be about $2,500 a month beginning in 2046.
Emergency funds: About six months of expenses
Debt: Mortgage - $320,000 - 3.625%
Tax Filing Status: Married Filing Jointly in 2024, Qualifying Surviving Spouse in 2025, 2026
Tax Rate: 24% Federal in 2024 (No state income tax), 12% in 2025, 2026
State of Residence: WA
Age: mid-40s
Desired Asset allocation: 90% stocks / 10% bonds ??
Desired International allocation: 40% of stocks
Total portfolio size: 1.5M
Current retirement assets
Taxable
2.54% cash (for investing – do not include emergency funds)
3.89% T. Rowe Price Ret. 2060 (TRRLX) (0.64%)
0.84% Alaska Air (ALK)
0.49% Apple (AAPL)
0.12% Boeing (BA)
0.08% GE Aerospace (GE)
0.01% GE Healthcare Tech (GEHC)
0.02% GE Vernova (GEV)
0.80% Nike (NKE)
0.20% Nintendo (NTDOY)
0.03% Nokia (NOK)
0.36% RSUs
His 401k at Fidelity
15.71% International Index Fund
17.16% Russell 2000 Index Fund
28.91% S&P Index Fund
5.41% Bond Market Fund
His Roth IRA at Schwab
4.1% T Rowe Price Ret. 2050 (TRRMX)
0.57% Select Sector Health (XLV)
1.68% Technology Select Sector (XLK)
1.46% Apple (AAPL)
0.24% Ford (F)
0.35% GE Aerospace (GE)
0.06% GE Healthcare Technology (GEHC)
0.11% GE Vernova
0.60% Nintendo (NTDOY)
0.01% WABTEC (WAB)
0.67% Cash $$$
Her 403(b) (with current employer)
5.19% T. Rowe Price Retirement 2045 Trust F
Her 401(a) (with current employer)
2.09% T. Rowe Price Retirement 2045 Trust F
Her 401a (past employer)
4.23% WSIB TAP
Her Roth IRA at Victory Capital
2.08% Target Retirement (USFRX) (0.56%)
_______________________________________________________________
Contributions
New annual Contributions (starting in 2025)
$23,500 her 403b
$7,000 her Roth IRA at Fidelity
~$5,000 her 401(a) employer contribution equal to 6% of gross pay
Available Funds
Funds available in her 403(b)
Interm./Long-term BondsNet ER%
PIMCO Total Return Instl 0.49%
Vanguard Total Bond Market Index I 0.03%
Vanguard Inflation Protected Secs Adm0.10%
Large-Cap Stocks
BlackRock Equity Dividend Instl 0.69%
Fidelity Total Market Index 0.01%
Vanguard FTSE Social Index 0.12%
Vanguard Institutional Index I 0.03%
JPMorgan Large Cap Growth R6 0.44%
Small/Mid-Cap Stocks
Neuberger Berman Genesis Tr 1.09%
Vanguard Mid-Cap Value Index Admiral0.07%
Vanguard Mid-Cap Growth Index Admiral0.07%
Vanguard Small Cap Value Index Admiral0.07%
International Stocks
American Funds EuroPacific Gr R60.47%
DFA International Value I 0.28%
Fidelity Total International Index0.06%
Multi-Asset/Other
T. Rowe Price RetirementBalanced 0.49%
T. Rowe Price Retirement 2005 Trust F0.37%
…(five year increments going all the way to 2060)
T. Rowe Price Retirement 2060 Trust F0.37%
Questions:
1. The plan I will suggest is to
a. Consolidate all old accounts through rollovers/transfers into 1) a single Roth IRA, 2) a single Rollover IRA, and 3) a single taxable account. These would all be at Fidelity. She will also have 4) her 403b at her current employer (which of course cannot be rolled). That is all.
b. Sell all stocks and stock funds in 1) - 3) and buy VT. I know VT in a taxable account is slightly suboptimal vis-a-vis 60% VTI / 40% VXUS for tax reasons, but I believe opting for simplicity is of the essence here. (Jonathan Clements would understand.) In 4), buy 60% Fidelity Total Market Index and 40% Fidelity Total International Index. Rebalance annually.
Does this plan seem sensible?
2. Life insurance and supplemental life insurance payouts totaling $1.4 million will be landing in her bank account sometime in January or February. I did not include it in “Retirement Assets” above. She is considering a number of uses for this: an Accessory Dwelling Unit (ADU), paying off the remainder of her mortgage, doing some home improvements, investing it, using it as a permanent pool of money from which to pull from to make day-to-day ends meet, investing it, traveling to Hawaii, etc. Or maybe a combination of many of these. She will not be making any big moves (e.g., paying off the mortgage) for at least six months. However, she is concerned that with the loss of her husband’s income, she can no longer “afford” to make sizable contributions to retirement accounts, as she is so deeply in the red. The situation makes her nervous. How should she think about simultaneously having a household budget that is “in the red” while at the same time making large retirement contributions? Does a CD/Treasury ladder make sense here?
3. In 2025 and 2026, when her income will have dropped, and she will be filing as a qualifying surviving spouse, does it make sense to do a Roth conversion for as much as she can whilst staying within the 12% tax bracket?
4. As I mentioned above, she is entitled to a $2,500 a month pension in the year 2045. I’m not certain if it is cost of living-adjusted, but I believe we will find this out shortly. As a general rule, though, I know that people with a pension can afford to be more aggressive with equity allocations, as they will be less dependent on drawing from their portfolios in retirement. But how should she approach the question of asset allocation approaching retirement, given the pension? What are some good rules of thumb/ways of thinking about it?
5. Somewhere in the deceased husbands’ notes, he mentioned having $20,000 worth of “precious metals.” I think we have been through every account in all of the papers, etc., and cannot find anything with such an amount or anything “precious metals”-specific. Any suggestions for how we might track this down?
6. Given the size of some of these sums (large by my eyes), does hiring a fee-only financial advisor make sense for her? I listen to Rational Reminder frequently, and I know they have talked about the importance of goal-setting before a financial plan gets drawn up. It seems that that is something a financial advisor could help walk her through. Is that a safe play here, and if so, how does she go about finding one? (The recent RR episode with the guy from Mercer Advisors makes me want to put them on the shortlist.)
7. Any other suggestions, feedback, concerns are welcome, and I thank all in advance for the help. I will be responding (in the days ahead), and my sister will be reading.
Problem: Seeing as how she has very little knowledge of investing, it is difficult to put down numbers for “Desired Asset Allocation” and international. However, upon her retirement, she will be receiving his company pension (a defined benefit plan), which will be about $2,500 a month beginning in 2046.
Emergency funds: About six months of expenses
Debt: Mortgage - $320,000 - 3.625%
Tax Filing Status: Married Filing Jointly in 2024, Qualifying Surviving Spouse in 2025, 2026
Tax Rate: 24% Federal in 2024 (No state income tax), 12% in 2025, 2026
State of Residence: WA
Age: mid-40s
Desired Asset allocation: 90% stocks / 10% bonds ??
Desired International allocation: 40% of stocks
Total portfolio size: 1.5M
Current retirement assets
Taxable
2.54% cash (for investing – do not include emergency funds)
3.89% T. Rowe Price Ret. 2060 (TRRLX) (0.64%)
0.84% Alaska Air (ALK)
0.49% Apple (AAPL)
0.12% Boeing (BA)
0.08% GE Aerospace (GE)
0.01% GE Healthcare Tech (GEHC)
0.02% GE Vernova (GEV)
0.80% Nike (NKE)
0.20% Nintendo (NTDOY)
0.03% Nokia (NOK)
0.36% RSUs
His 401k at Fidelity
15.71% International Index Fund
17.16% Russell 2000 Index Fund
28.91% S&P Index Fund
5.41% Bond Market Fund
His Roth IRA at Schwab
4.1% T Rowe Price Ret. 2050 (TRRMX)
0.57% Select Sector Health (XLV)
1.68% Technology Select Sector (XLK)
1.46% Apple (AAPL)
0.24% Ford (F)
0.35% GE Aerospace (GE)
0.06% GE Healthcare Technology (GEHC)
0.11% GE Vernova
0.60% Nintendo (NTDOY)
0.01% WABTEC (WAB)
0.67% Cash $$$
Her 403(b) (with current employer)
5.19% T. Rowe Price Retirement 2045 Trust F
Her 401(a) (with current employer)
2.09% T. Rowe Price Retirement 2045 Trust F
Her 401a (past employer)
4.23% WSIB TAP
Her Roth IRA at Victory Capital
2.08% Target Retirement (USFRX) (0.56%)
_______________________________________________________________
Contributions
New annual Contributions (starting in 2025)
$23,500 her 403b
$7,000 her Roth IRA at Fidelity
~$5,000 her 401(a) employer contribution equal to 6% of gross pay
Available Funds
Funds available in her 403(b)
Interm./Long-term BondsNet ER%
PIMCO Total Return Instl 0.49%
Vanguard Total Bond Market Index I 0.03%
Vanguard Inflation Protected Secs Adm0.10%
Large-Cap Stocks
BlackRock Equity Dividend Instl 0.69%
Fidelity Total Market Index 0.01%
Vanguard FTSE Social Index 0.12%
Vanguard Institutional Index I 0.03%
JPMorgan Large Cap Growth R6 0.44%
Small/Mid-Cap Stocks
Neuberger Berman Genesis Tr 1.09%
Vanguard Mid-Cap Value Index Admiral0.07%
Vanguard Mid-Cap Growth Index Admiral0.07%
Vanguard Small Cap Value Index Admiral0.07%
International Stocks
American Funds EuroPacific Gr R60.47%
DFA International Value I 0.28%
Fidelity Total International Index0.06%
Multi-Asset/Other
T. Rowe Price RetirementBalanced 0.49%
T. Rowe Price Retirement 2005 Trust F0.37%
…(five year increments going all the way to 2060)
T. Rowe Price Retirement 2060 Trust F0.37%
Questions:
1. The plan I will suggest is to
a. Consolidate all old accounts through rollovers/transfers into 1) a single Roth IRA, 2) a single Rollover IRA, and 3) a single taxable account. These would all be at Fidelity. She will also have 4) her 403b at her current employer (which of course cannot be rolled). That is all.
b. Sell all stocks and stock funds in 1) - 3) and buy VT. I know VT in a taxable account is slightly suboptimal vis-a-vis 60% VTI / 40% VXUS for tax reasons, but I believe opting for simplicity is of the essence here. (Jonathan Clements would understand.) In 4), buy 60% Fidelity Total Market Index and 40% Fidelity Total International Index. Rebalance annually.
Does this plan seem sensible?
2. Life insurance and supplemental life insurance payouts totaling $1.4 million will be landing in her bank account sometime in January or February. I did not include it in “Retirement Assets” above. She is considering a number of uses for this: an Accessory Dwelling Unit (ADU), paying off the remainder of her mortgage, doing some home improvements, investing it, using it as a permanent pool of money from which to pull from to make day-to-day ends meet, investing it, traveling to Hawaii, etc. Or maybe a combination of many of these. She will not be making any big moves (e.g., paying off the mortgage) for at least six months. However, she is concerned that with the loss of her husband’s income, she can no longer “afford” to make sizable contributions to retirement accounts, as she is so deeply in the red. The situation makes her nervous. How should she think about simultaneously having a household budget that is “in the red” while at the same time making large retirement contributions? Does a CD/Treasury ladder make sense here?
3. In 2025 and 2026, when her income will have dropped, and she will be filing as a qualifying surviving spouse, does it make sense to do a Roth conversion for as much as she can whilst staying within the 12% tax bracket?
4. As I mentioned above, she is entitled to a $2,500 a month pension in the year 2045. I’m not certain if it is cost of living-adjusted, but I believe we will find this out shortly. As a general rule, though, I know that people with a pension can afford to be more aggressive with equity allocations, as they will be less dependent on drawing from their portfolios in retirement. But how should she approach the question of asset allocation approaching retirement, given the pension? What are some good rules of thumb/ways of thinking about it?
5. Somewhere in the deceased husbands’ notes, he mentioned having $20,000 worth of “precious metals.” I think we have been through every account in all of the papers, etc., and cannot find anything with such an amount or anything “precious metals”-specific. Any suggestions for how we might track this down?
6. Given the size of some of these sums (large by my eyes), does hiring a fee-only financial advisor make sense for her? I listen to Rational Reminder frequently, and I know they have talked about the importance of goal-setting before a financial plan gets drawn up. It seems that that is something a financial advisor could help walk her through. Is that a safe play here, and if so, how does she go about finding one? (The recent RR episode with the guy from Mercer Advisors makes me want to put them on the shortlist.)
7. Any other suggestions, feedback, concerns are welcome, and I thank all in advance for the help. I will be responding (in the days ahead), and my sister will be reading.
Statistics: Posted by RetiOpening — Sat Oct 26, 2024 7:25 pm — Replies 8 — Views 836