Author Topic: I need an account makeover  (Read 2335 times)

JoJo

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I need an account makeover
« on: February 01, 2016, 01:49:07 PM »
Im hoping to RE by 2017 at age 44 and Im starting to think about what to do about my existing accounts.  I think I want to consolidate accounts to a minimum as I will be nomadic for awhile so I want to keep mail to a minimum (might get a mailbox in my current state which has no income tax).  I also want to simplify from a tax standpoint.  There is a small chance Ill retire this year after bonus is paid in late March.
Here are the current accounts I have.  How would you make over these accounts?  What time frame would you do each (now, before retirement, vs. immediately after, etc).

Invested in mostly stock funds:
   401k from former company.  Its been sitting there for over 10 years and currently is managed by Fidelity
   401k from current company.  Vangaurd.
   Deferred Compensation account.  Vanguard.  Cant ever touch this except allocations.  Once I retire, this starts 15 year payout that is taxable income. 
   6 different Roth IRA accounts managed by 6 different fund companies ranging from $1200 to $15K.  Stupidly in my 20s someone convinced me I needed to diversify my accounts so I ended up with all of these dinky accounts.  I feel like I should consolidate these by rolling into a single Roth, as the fees are eroding these and its been difficult to keep addresses up to date with various moves.  Im ineligible to put any new money in due to income.
Other:
   Two savings accounts I have too much money in these as I have been scared to dump money into the market.  Getting 0.5% - 1% interest on these.  Im a bit embarrassed to say I have over 10 years of expenses in these accounts.  There really wasnt a lot in here until 2011 when the condo was paid off.  Everything that doesnt go in the deferred accounts above goes here.
   HSA to get matching by my company, I have to put this in the preferred HSA provider.  This has been sitting in a fixed account and will be around $28K by retirement. 
   Own condo without any debt.  Can sell for about $480K or rent for $2100 per month.  I know this income is bad and after vacancies, management, repairs, property tax and dues this will only net about $1K a month.  Kind of want to hold onto this to live in it later after traveling for awhile as its in a great location and is a good bachelorette pad.
   Have frozen pension and Cash Balance plan in fixed, cant cash these out or change allocations.
   Small amount of life insurance which is basically paid up.

Heres the tentative plan please comment if any of these are bad ideas or if there are alternatives:
   Now: consolidate the Roth IRAs into a single account at Vangaurd.
   Retirement: roll 401Ks into IRA
   Live off of savings, rental income, and Deferred Comp to age 59
   At 60, draw some out of 401Ks to minimize tax rate.
   At 65, start payouts of pensions
   At 67+, start payout of social security
   Leave HSA & Roth until needed
   Hold onto condo until Im tired of living there and/or renting it.
   Possible to move additional money into Roth IRAs if I dont have earned income in the future?  Ideally out of savings account.

nereo

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Re: I need an account makeover
« Reply #1 on: February 01, 2016, 01:56:24 PM »
Quote
Heres the tentative plan please comment if any of these are bad ideas or if there are alternatives:
   Now: consolidate the Roth IRAs into a single account at Vangaurd.
   Retirement: roll 401Ks into IRA
   Live off of savings, rental income, and Deferred Comp to age 59
   At 60, draw some out of 401Ks to minimize tax rate.
   At 65, start payouts of pensions
   At 67+, start payout of social security
   Leave HSA & Roth until needed
   Hold onto condo until Im tired of living there and/or renting it.

That sounds like a fine plan to me.  I'd seriously consider moving some of that 10x savings into a fund and letting it go to work for you.  If you're very risk-adverse you could set up a multi-year bond ladder, but 10x living expenses earning 0.5% is basically guaranteeing you will loose out to inflation.

one note - you aren't paying more in fees because you have multiple accounts.  It makes no difference whether you have 10 accounts each with $10k ($100k) total each with a 0.5% fee, or one single account with $100k and a 0.5% fee.  It would be the same.

Quote
   Possible to move additional money into Roth IRAs if I dont have earned income in the future?  Ideally out of savings account.
You cannot contribute to a ROTH if you have no earned income.  However, you *can* convert some of the money from your tIRA (which you rolled over from your 401(k)s) into your ROTH, thereby ensuring you won't have to pay taxes on it again.  This is a Roth Conversion Ladder.

JoJo

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Re: I need an account makeover
« Reply #2 on: February 01, 2016, 02:33:15 PM »
All of the Roths have around a $20 per account fee in addition to the basis points, so I am paying an extra $100 or so a year. 

nereo

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Re: I need an account makeover
« Reply #3 on: February 01, 2016, 02:48:43 PM »
All of the Roths have around a $20 per account fee in addition to the basis points, so I am paying an extra $100 or so a year.
Well that sucks... and is indeed a good reason to consolidate them under one brokerage that does NOT charge an annual fee + basis points.  I've been happy with Vanguard (as have you, apparently) - but there are others as well.

There's absolutely no reason to keep multiple brokerages for your IRAs.  If you really want to you can have your IRA account invested in many different funds even if it's held at just one brokerage.

BBub

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Re: I need an account makeover
« Reply #4 on: February 01, 2016, 02:53:03 PM »
The tentative plan looks pretty solid.

1. Seriously challenge the decision to keep the $480k condo.  That's a good chunk of change to tie up in an unproductive asset.  Your overall plan seems very well funded given the info you provided, so you can probably afford to keep that money idle..  But doing so definitely seems sub-optimal.

2. +1 on nereo's suggestion to put some of the 10x cash to work.  Consider keeping 2-3x in cash and investing the rest.  You could DCA over 12, 24, or even 36 months.  Systematic investments can be set up automatically through your acct provider, so you just dump the cash in & the investments will automatically buy on the same day each month.  That'll keep you from having to track it while you're wandering the globe.

3. +1 again on looking into roth conversions.  It may or may not make sense depending on the amount of your deferred comp & other income.  But it's definitely something to look into.
« Last Edit: February 01, 2016, 02:56:51 PM by BBub »

JoJo

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Re: I need an account makeover
« Reply #5 on: February 01, 2016, 04:09:54 PM »
I could be wrong but it feels like the price of the condo will continue to rise at least at the inflation rate.  It's in a quickly growing area with limited land to build (due to the sound, lake, and mountains).  It's a great location with protected western view of lake, mountains, and city skyline.
With that and the rental income or ability to live there (might even do airbnb at the times I choose to live there).  The city has lots of activities for people over 50 and great volunteer opportunities - performance center, city events, library, etc.  It would be a good place for mid-age retirement at points where I'm tired of traveling.

BBub

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Re: I need an account makeover
« Reply #6 on: February 01, 2016, 04:24:08 PM »
Sounds like a cool spot.  May make sense to keep it.  I'm just trying to encourage you run the numbers, try to determine opportunity cost & view it as a financial transaction.  Then with those numbers in hand, evaluate the benefits & see if you are willing to spend that amount of money on those benefits.  If so, awesome. At least you made an informed decision.

I.E. here's an example of how to reasonably approach the problem:

Condo Value: $480k
Rent: $12k annually (or 2.5%)
Inflation: 2%

Keeping the condo, at the end of 15 yrs you will have realized in nominal terms:

Condo Value: $646k
Rent: $208k ($12k in yr 1, adjusted upwards by 2% annually thereafer)
Total: $854k

If you sell the condo, invest at 7.5%, and continue to withdraw the $12k adjusted for inflation you will have realized:
Asset Value: $998k ($480k compounded at 5% for 15 yrs)
Income: $208k
Total: 1,206k

Under a 7.5% return / 2% inflation scenario, you are giving up $352k.  That's your opportunity cost.  Maybe having the condo is worth it, maybe not - only you can decide.  Of course, higher or lower real returns would drastically alter the spread.  But you should run a similar analysis with realistic expectations, then use that info to help inform your decision.
« Last Edit: February 01, 2016, 04:29:40 PM by BBub »

MDM

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Re: I need an account makeover
« Reply #7 on: February 01, 2016, 04:24:51 PM »
   Deferred Compensation account.  Vanguard.  Cant ever touch this except allocations.  Once I retire, this starts 15 year payout that is taxable income. 
If you can, you might want to defer the start of this payout.  Why?  In order to do traditional->Roth conversions after you retire at the lowest tax possible.

Quote
   HSA to get matching by my company, I have to put this in the preferred HSA provider.  This has been sitting in a fixed account and will be around $28K by retirement.
You may have to put it there, but you don't have to leave it there.  See http://thefinancebuff.com/how-to-rollover-an-hsa-on-your-own-and-avoid-trustee-transfer-fee.html.

JoJo

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Re: I need an account makeover
« Reply #8 on: February 01, 2016, 04:45:50 PM »
   Deferred Compensation account.  Vanguard.  Cant ever touch this except allocations.  Once I retire, this starts 15 year payout that is taxable income. 
If you can, you might want to defer the start of this payout.  Why?  In order to do traditional->Roth conversions after you retire at the lowest tax possible.

Quote
   HSA to get matching by my company, I have to put this in the preferred HSA provider.  This has been sitting in a fixed account and will be around $28K by retirement.
You may have to put it there, but you don't have to leave it there.  See http://thefinancebuff.com/how-to-rollover-an-hsa-on-your-own-and-avoid-trustee-transfer-fee.html.

No choice on the deferred comp - upon termination you HAVE TO start distributions in the year you terminate and for the number of years you pre-selected (I picked 15 as it was the maximum so the smallest income recognition each year, and gets me to age 59-ish).  The annual payment from this will be about 10K per year if I retire this spring or 20K per year if I retire after March 2017.