EverGuide Financial Group, LLC
Mark R. Painter, CFA is the Founder and President of EverGuide Financial group. He has been an investment manager for over 12 years at both the institutional and retail level having managed public mutual funds and individual client accounts. Additionally he has written for Seeking Alpha and been a speaker on various panels and industry conferences. Mark and his team's mission at EverGuide Financial Group is to help their clients navigate their financial course through cost effective wealth management and Everlasting education.
A graduate of Carnegie Mellon University Tepper School of Business, Mark went on to attain his CFA charter in 2009. Mark worked for Stanley Laman Group, Ltd from 2004 2016.
At Stanley Laman Group, Mark quickly went from analyst to portfolio manager in 2005 and helped create their portfolio management business. Not only was Mark responsible for portfolio management but also had large responsibilities in working with clients to understand their needs and financial goals. In 2014 Mark became the lead portfolio manager of a publicly listed mutual fund (American Real Estate Income Fund).
BS, Business Administration, Carnegie Mellon University
Assets Under Management:
From a pure investment perspective the quick answer is sell the property. Assuming the 3,000 a month is a gross number and does not include taxes, insurance, miscellaneous expenses then you can divide the yearly income 36,000 by the market value 1,250,000 to get a return of 2.88%. This is a very low rate of return. Now, let's also assume that you have a 0 cost basis in the house and after all taxes, closing costs, fees are paid you net 1,000,000 for the property. Dividing 36,000 from 1,000,000 still only nets a return of 3.6% which is still fairly low. I usually recommend to clients to get a 6% return at a bare minimum for real estate investments in order to justify the illiquidity and hassle of owning real estate. In many cases, returns are significantly higher for real estate than 6%.
Let's take this one step further and take the 1,000,000 net cash from the sale of the property plus the 600,000 in stocks and bonds. If you divide the 80,000 by 1,600,000 you get a required return of 5%. This does not even factor the social security and the small pension which would reduce the required return. A 5% income return can be achieved in the current environment with a well diversified portfolio that will allow you and your mother to live comfortable for a long period of time.
I willl end by saying that there are ways that you may be able to reduce the tax burden but it is well beyond the scope of this post and would require a lot more information about the personal situation. I would recommend at least having a consultation with a financial advisor or accountant to see if they can help.
First of all congratulations on your retirement.
There are a number of arguments about what is the optimal number of stocks and bonds. Diversification is most important for a retiree because you are now living off your portfolio and do not have the luxury of riding out big market losses.
With that being said, there are many studies about the number of stocks that it takes to get a diversified portfolio. This article has a nice chart that shows that once you get passed 25 stocks, the benefits of adding more stocks are minimal. https://intrinsicinvesting.com/2016/12/01/excessive-diversification-is-pointless-damages-returns/
This is important because the recommendation is to hold funds. This can be an effective way to manage money, but it is important to make sure that the funds have different characteristics and do provide true diversification. If you look through each fund to the actual stock holdings you most likely will have several hundred individual positions. This leads to the second part of the question which is the fee being paid. 1% is not necessarily expensive but it is important to take into account the value you are receiving for this 1%. If it includes active management, cash flow analysis, financial planning, tax planning, etc. than it may be worth while. If it is simply to manage an asset allocation of funds it may be a bit high especially when considering the underlying fund fees as well.
Overall, the best advisor for you will be one that you feel brings the most value and aligns with your thinking and beliefs.
Technically the statement that you have no pension is true, but it is also misleading. Your portfolio of fixed income acts like a pension and provides you income to live even if it does not guarantee you income should you spend the entire nest egg. Assuming that you have done proper planning and are comfortable with the 2.5 million providing enough income for you, then there is no need for an annuity. The only time an annuity would make sense is if you spent your portfolio and then lived off the income from the annuity. Even in that case, the annuity income on $200,000 will be much lower than what you are currently receiving from your portfolio. The times an annuity would make sense would be if there is a good chance you outlive your money and even then you are wagering against numerous actuaries that make a living off making these calculations.
Best of luck as it appears you already have the right frame of mind.
First of all congratulations on being proactive and dilligent on saving for your retirment. Having non-taxable money is a great way to go and should be considered in part of your plan.
While there are a few factors to consider when making the decision, the first is that the tax bracket increases for 2019 to $78,951- $168,400 for the 22% bracket so from that perspective you will get a small break this year in not moving to a higher tax bracket.
Additionally, you will want to compare the current tax savings vs future tax savings. The one outlier is that there is an unknown of what your future tax rate can be. This will be both from an income perspective (you most likely will not be earning 150k in retirement) and from an actual tax rate perspective. The income can be somewhat forecastable, but the tax rate will not be.
Because of some of the uncertainty I would recommend doing a scenario analysis that compares what the savings would be under different tax rates and income levels. This would then provide you with the analytics to make an informed decision. We do this with our clients on a routine basis and it helps them make the best decision for their situation.
In order to minimize taxes you will want to pay the lowest tax rate. This seems pretty obvious, but does take some work to do it effectively. This can be done with a calculation that compares current income with retirement income and comparing the tax rates. Partial Roth IRA conversions can be one way to do this, but you need to remember that the money you convert will be treated as income, just like the money you withdraw will be treated as income. Additionally, you will want to pay the taxes from your current income or other assets outside of your IRA accounts. This will allow more money to remain in the Roth to continue to grow tax free before you start taking withdrawals.
I would highly recommend doing a comparitive analysis between converting now vs the estimated distributions you will need in retirement. This also allows you to test different scenarios so that you can see the effect different tax rates, withdrawals, expected returns, etc. will have on your estimates. Once you have the numbers in front of you it will be much easier to make the decision on how to plan for retirement.