Bright Road Wealth Management, LLC
How I got into this mess:
I'll admit it took me longer to find my true calling than most. Resistance to wearing a suit, lack of a win-at-all costs attitude (commitment to my own integrity), and an industry rife with conflicts of interest all conspired to keep me from becoming a financial planner sooner.
But by the time I found my home as a fee-only financial planner, I had unwittingly built a strong skill set that became the perfect foundation on which to build a career. Creativity honed in architecture and the arts combined with 15 years of small business operational management and strategic planning, provide much more practical experience than many advisors with more direct experience can bring to bear. Years of coaching individuals in productivity and efficiency combined with study of behavioral economics gave me an intuitive understanding of motivation. Finally, years of outdoor adventure guiding and real estate investment management brought me enough risk assessment and risk management experience to fill several lifetimes.
What I provide for my clients:
I am committed to full-service, comprehensive financial planning and investment management. I work with clients, both in person and virtually, to optimize their unique financial situation. I like to help my clients save money and increase the return/ risk ratio of their investments. My goal is to maximize the probability of you achieving your own personal and financial goals. This is a long-game approach. As humans, we are prone to growth and as we grow our goals can change, so I use what I know about you to preserve your future choices.
When I am not working on improving your financial life:
I hang out with my wife and two young kids in the outdoors - biking, camping, skiing, or rafting. I teach Wilderness First Aid courses for NOLS. I volunteer as Treasurer of the Tacoma Waldorf School Board of Trustees.
Bachelor of Environmental Design, Texas A&M University
Fee-Only Based on Assets Under Management
Bright Road Wealth Management, LLC is a registered investment adviser in the States of Alaska, Texas, and Washington. The adviser may not transact business in states where it is not appropriately registered, excluded, or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.
Since you aren't retired, you may not need to take RMDs yet depending on what your 403(b) allows, but I'll assume your plan requires RMDs based on the age requirement regardless of whether you are retired.
It's not a good idea to pick an investment vehicle based on the RMD situation. Sounds like it might help to take a step back and look at your larger goals. Satifying required minimum distributions (RMDs) should be part of your larger tax plan, which should be part of a yet larger financial plan. No one should be waiting for RMDs to just "hit them".
Additionally, it's important to not let the tax-tail wag the dog, meaning the goal is to maximize future cashflow available to you. A good financial plan includes good investment planning and minimizing tax consequences. In a perfect world, you should plan distributions and conversions ahead of retirement and before turning 70.5, so that you can maximize tax advantages over your entire life expectancy.
One of the the few advantages of an annuity is tax deferral. You already have that advantage with your 403(b). You would also have that advantage rolling into a Traditional IRA. The biggest downsides to annuities are high fees (read: low returns), limited investment options, and complexity. Guaranteed returns are usually the selling point, but these guarantees should be reviewed carefully and with expert assistance (and I don't mean from the sales person). Frequently, the salespeople at your 403(b) provider will think that the best thing for everyone is to roll their 403(b) into an annuity with that provider. Rarely is that the best option once you consider all options available to you.
If you are required to take RMDs, regardless of the type of account, the calculation is based on the value of those tax-deferred accounts and your life expectancy. All of the distribution will be taxed as ordinary income. The "rollover" is not a taxable event whether to an annuity, a Traditional IRA, or to another 403(b) at a new employer.
Rolling a 403(b) into an annuity doesn't solve any of the problems that RMDs create.
If you can reframe your thinking a bit, you should stick with long-term investments in the market. All it takes is to just look at the empirical data without emotion, to see the better investment. Unfortunately, our world is filled with misinformation aimed at bringing emotion back into our financial decisions.
"Your" rep is suggesting this because she/he heard the magic words "I don't want to lose money." When people ask insurance agents for a guaranteed return, that's exactly what they get - a guarantee to barely outpace inflation. This is probably selection bias, but only about 10% of the people I see that buy these are still happy with them after 2-3 years. Somehow the returns on these annuities don't work out to be what the owner expected.
Here are some ways to reframe your thinking, if you'd like to:
1) "Your AAA rep" is actually AAA's sales rep with a primary duty to AAA. If you aren't paying for their advice, just ask yourself who is paying them to recommend things to you. Further, it seems that many agents don't actually understand points 2 and 3 below. It seems some generally believe that a guaranteed positive return is good no matter how small or how much it costs in fees. Frankly, I have met only a few that had any formal eduction related to investing in the market. Many have a fear of market volatility based on their own bad investment experiences or just lack of understanding.
2) Volatility is not unreliability. The market is not and has not been unreliable in the 90 year period for which we have reliable data. On average, the market has one down year in every five on the order of negative 20-40%. With the Dow being down only 5.63%, 2018 was not that - meaning another short-term downturn should be expected. If you are appropriately diversified, you can limit your participation in volatility, but short-term downturns should absolutely be expected within the long-term growth trend.
3) You won't have "lost" any money until you sell your investments. Sure some blue-chip stocks have gone to zero, but you shouldn't be guessing/betting on individual stocks anyway. When you sell in a down market, though, you are literally selling low and locking in losses. Think about this: you probably know a few people who locked-in losses in 2008, selling out of great portfolios and buying annuities or CDs or worse, just putting it in a brick and mortar bank savings account. How are they doing today? Many of them regret that decision. Unfortunately, many of these people are struggling today, because no one was there to talk them out of selling at the bottom. Some still blame the "market", but it's just bad investor behavior. No one forced them to exit the market and miss out on 10 years of growth that would have tripled their investments. We don't know when those great up years are going to happen, but we do know when people sell at or near the bottom, they generally wait until they feel better about the market's "reliability" to get back in... that usually turns out to be the top before another downturn.
4) Focus on the problem, not investment returns (particularly short-term returns). What is the problem your investments are trying to solve? At 48, unless you have reason to believe you'll die before 60, the biggest problem you have ahead of you is loss of purchasing power due to inflation. You need your investments to grow. Becoming too risk averse too early guarantees a need for higher contributions.
5) If you have a good investment plan, or even better, a good financial plan, you shouldn't be making changes based on market cycles. Changes should be based on changing goals or life circumstances.
Don't get me wrong. There are some great insurance agents out there, and some annuities that are great solutions for a small percentage of the population. But from what you've said here, I don't see anything that puts you in that small percentage.
However, if you think you won't reframe this way and you'll continue to sell at the bottom, then it probably is a good idea to move to an annuity and dramatically increase your savings rate. In that case, you should shop around with several agents and get a second opinion from an advisor that doesn't sell annuities.
Good luck with your decision.
First, I’m very sorry for your loss. That must be very difficult.
Here are three good possibilities for investing the money:
1) Put it in a Vanguard Target Date Fund. These are good investments, easy process, low expenses.
2) Put it in a Betterment account. This will provide a better mutual fund allocation that matches your investment profile. Still low expenses, easy process.
3) Find a fee-only (not fee-based), fiduciary (in all cases) advisor to build a portfolio for you. You get will the best results by working with someone to create a comprehensive financial plan. This portfolio will match your goals with the least risk needed to achieve the desired outcome. You will also get advice on some tax issues you are facing, such as required withdrawals of those IRAs. Some advisors may also be able to help you with decisions about the house.
I would avoid advisors who offer “free” advice, who recommend buying individual stocks, or recommend “guaranteed investment” or “alternative investments”. You don’t need the excess risk that these products require or the excess fees that go along with them.
I’d be happy to answer further questions for you and point you in the direction of more resources. Feel free to contact me.
You should not hire a financial advisor who is willing to select individual stocks for you, nor should you do that yourself. The historical evidence shows that the vast majority of people who engage in stock-picking underperform the market dramatically, even advisors. There are plenty of advisors still doing this thinking they are somehow able to predict the future. They can't, no one can.
Instead you should be investing in the entire market, which you can only really do with mutual funds.
To the question of allocation, I'd ask how you decided that 50/50 is the right allocation for you. This is where an advisor can really help. Asset allocation is complex and it's easy to mess up - naive diversification is a huge problem that I see when investors pick investments without guidance. The goal of asset allocation is to dampen the volatility of your portfolio while still achieving a reasonable return, but if you end up without proper diversification, your allocation can't do it's job.
To that end, if you want a do it yourself approach, an easy way to assure that you are actually diversified is to pick a low expense ratio target date fund. A target date fund for 2020 typically has a 55/45 allocation right now. This allocation will change over time in a risk appropriate way.
I'd recommend talking to a few fee-only (not fee-based) advisors to get a better understanding of your situation and what the best asset allocation would be for you specifically.
No. Social Security payments are based on your work history and the age at which you claimed benefits. Once you’ve filed for benefits, the only changes should be cost of living adjustments, if you become eligible to claim spousal benefits, or if an error was made during filing. Your income can also effect taxation of your benefit.