- April 8, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Planning for Retirement Distributions: A Complex Situation
My parents, both 70 years old, are finally looking towards retiring soon. With their wealth spread across 8 different accounts, they are facing confusion and uncertainty regarding how to manage their finances in retirement. The “Financial Professional” they have been working with has focused on wealth growth, leaving them unsure about how to handle distributions now that they are ready to access their funds.
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### Seeking Expert Advice for Consolidation
The task of consolidating 4 separate mutual funds, 2 high yield savings accounts, and 2 IRAs may require professional assistance. While a CPA could help guide your parents through the process of emptying their accounts and merging them into a single, lower-risk option like a savings account or CD, it is essential to consider the tax implications of such a move. Emptying all accounts at once could significantly impact their income for the year, potentially leading to a substantial tax bill in the future.
### Working Towards Financial Stability in Retirement
As your parents prepare to start drawing social security benefits, they seek to ensure their remaining funds are easily accessible and secure. With the guidance of a knowledgeable financial advisor, such as a CPA specializing in retirement planning, they can navigate the complexities of reorganizing their assets while minimizing tax liabilities and maximizing financial stability in their retirement years.
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Find a CFP in your area. Every single one of them is obligated to act as a fiduciary and will help them consolidate and plan for regular income from their accounts.
Find a CFP that specializes in retirement. The grow, grow, grow approach has its time and place but that’s not age 70 and about to retire. There are different approaches that different advisors take and as I’ve listened to some of their podcasts I wouldn’t say any of the ones I listen to are bad. You have to find something you are comfortable with.
Your allocation at this point needs to be matched to WHEN you expect to need the money. Hopefully they are well funded and this is mostly a mechanical exercise. When my FIL died, his IRA was all invested in 3 stocks. My MIL had a large enough stream of income from her pension and his SS that she didn’t need that to live off of, but I still nearly had a stroke. Those were some nervous weeks exiting those positions even though one of the stocks got bought out and added to a major index. (Up 68% in 2000).
Ok. It’s not unusual to have several retirement accounts. It is also not unusual for different financial advisors to have differing investment strategies. You don’t mention the total asset accumulation nor the asset allocation. Plus your parents expenses and needs and any income stream. If they are over 70 they should be taking social security so there is that. Any pensions? House paid for? Mortgage? Rent? Cars? Health? Statistically one is likely to live past 90. Simply if they have $2 million and no debt then a more conservative investment approach might be advisable. On the other hand if they have $200k and a mortgage the approach would be different.
Hi! I am a CFP and I agree with folks here. Find a Registered Investment Advisory (RIA) firm and interview 2-3 firms to see who your parents values would best align with. The financial advisor/CFPs will normally give you a free consultation to understand your needs and circumstances. And yes – they help with consolidation of accounts, transfers, investments, distribution planning, etc.
CPAs almost never help with that. CPAs deal with taxes while CFP/ deal and help with financial planning.
I’m a retired CPA and I put this together to answer questions like yours. I suggest you make a copy and input the numbers where appropriate. That will give you a better handle on things.
[Simple Financial Projection ](https://docs.google.com/spreadsheets/d/1WQphWoaXtoleI_fhhHXIDWS9xm6rSB8qLWv1dVH7y1A/edit?usp=drivesdk)
To be honest, 8 accounts isn’t a lot. And IMO, 80% stocks is NOT an issue but converting everything to cash would be a far bigger issue.
Use my template and see what your parent’s need from their investments based on their planned spending level (just set the cell for years to 1). What is the computed percentage? If it’s low, like 2%, their asset allocation is absolutely fine, because the dividends alone will cover their annual spending needs.
Here is my second template to use. This helps you plan out the years.
[Flight Plan](https://docs.google.com/spreadsheets/d/1D3ZdVFka6v6kNfooC7P8jTT1X9MTQ1zCGLzH4OCHWJQ/edit?usp=drivesdk)
Let me use an example. Let’s say their spending needs are $100K, and their combined SS is $60k. That means they need $40K from investments, or 4%.
Based on your 80% number, that means they have about $800k in stocks and $200k in HYSAs.
At a 2% dividend yield, the stocks will produce $16k. At 5% current yields, the $200k in the HYSAs will yield $10k. That means of the $40k investment needs, $26k is covered, so the only redemption is $14K from the HYSA. If you take out the $14K, they still have $186K left. That is another 10+ years of their spending needs just sitting in the HYSA. There is absolutely no need to sell stocks to pile more cash on top of the existing pile.
Even if they spend $100K for the medical issue, they still would have $100K left, which is likely 5 years of their spending.
Also, RMDs will start in a few years, so you need to factor that in.
Personally, you don’t need to change advisors. You just need a plan, starting with something like my templates. Factor in the existing distributions from the four mutual funds. Determine what to draw from the IRAs, if any, before the RMDs kick in. Plan on spending money from the HYSAs for the excess over the distributions and then sell enough from the mutual funds or the IRA to cover the spend. A CFP may be helpful, but a lot of this you can just do yourself with the many tools available on the internet and my two templates.
I hope this helps. If you have further questions, holler back.
They are 70, at least one of them might still live another 20 years. I wouldn’t get completely out of stocks. You might be able to consolidate the mutual funds into one brokerage. I had a bunch of different funds with a bank and moved them all to Vanguard. I only had to sell one fund.
They shouldn’t need 100k for a medical need, don’t they have Medicare? If they do need a big chunk of money you could sell off funds then. It does sound like you need a different person dealing with the funds. Someone should be able to help them set up a system of distributions. If the IRAs aren’t ROTH, they will have required minimum distributions (RMDs) at some point – I forget the age as I’m still a ways away, but if you don’t take the RMD, you get a big fine.
You will definitely not want to liquidate everything at once as it will be a big tax bill. How much of their investments will they likely need to be taking once they start taking SS? Because if this is a large amount and they don’t need it all, any stocks that are left when they die will have a stepped up basis and the heirs would owe less taxes.
1. find a CPA/CFB that specializes in retirement
1.5 Ask for the best broker to transfer the accounts into, and determine if any can be consolidated
2. find an estate attorney and put the appropriate assets into trusts, get a POA named, and ensure that all their accounts logins and passwords are written down in a safe place
Go over to Bogleheads community and post your question
Whatever you do, don’t withdraw the money from the IRA all at once. If you’re moving money to another brokerage, you do what’s called a rollover so that the money stays in an IRA during the move. Withdrawing the money makes the taxes due, and that could eat up 40% of their IRA.