When I was an engineer at my old company, I was able to buy the company stock at a discount. I also received some stock options and stock grants. All these shares were deposited in a brokerage account which has a somewhat reasonable fee. Recently, there was a change to the plan and I had to move my few remaining stocks to a full service wealth management account. The fees are much higher in this account. There is an annual fee (around $200) and the trading fee is a percentage of the transaction plus a fixed fee. I’d have to pay about $350 in transaction fees to sell the 400 remaining shares of my old stocks. That is ridiculously expensive when I can sell them for $4.95 at TradeKing. On the other hand, this full service account gave me access to a financial advisor who can go over our finances. I did that and I’m here to report that I like DIY retirement planning much better.
Our financial worksheet
I had to do some preparation before talking to the financial advisor. First, I added all our accounts to their site so they could see our net worth. Then, I filled out a worksheet. I’ll share it here.
Okay, that’s a lot of information. I’ll highlight a few things.
I plan to keep working part time until I’m 65. Mrs. RB40 would like to retire from full time work in a few years. She could transition to part time or maybe not. At this point, we’ll just assume she won’t make any income after she leaves her full time job.
Our cash flow will probably be a bit short after Mrs. RB40 retires. I’m making about $30,000 per year and we receive about $15,000 from rentals and our dividend portfolio. We spend about $55,000 per year so we are short about $10,000 per year at this time. My online income looks like it will be better in 2017 so we might not be short that much, but we’ll just go with this for now.
Bottom line – we need to take out about $10,000 per year from our savings. To me, this is not a big deal. Our net worth is over $2 million and $10,000 is less than 0.5% of that. Personally, I think the 4% safe withdrawal rate is a bit too aggressive when it comes to early retirement. Most readers agree with me and they prefer to accumulate 30x their annual expense for early retirement. Anyway, my point is that 0.5% withdrawal rate should be easily sustainable even if we spend 60 years in retirement.
Financial Advisor Analysis
I sent the financial advisor all our info and he ran it through their Monte Carlo model. This is just a software simulation to gauge your chance of having a successful retirement – not run out of money. I talked to him a few days after and our probability of having a successful retirement was a disappointing 73%.
Whoa, what happened there? I spent about an hour going over the result with the financial advisor on the phone and here is where it went wrong.
Different starting point
A rental property doesn’t compute well in their Monte Carlo model. Our rentals are worth about $600,000, but they only generate about $3,000 per year right now. It’s terrible cash flow, but the equity is steadily accumulating.
Their model doesn’t take the equity of the rentals into account so their starting point is around $1.5 million. I understand that it’s difficult to take the rentals into account, but ignoring them will really screw up our number. Their suggestion is to sell the rental when I’m 65 so the proceeds can be invested. It will be easier to model then. We’ll talk more about the rentals a bit later.
Social Security benefits
I told them we expect to receive about $25,000/year each from Social Security when we turn 67. However, they didn’t use the number I supplied. They derived the Social Security benefit from our current income. This means my benefit is estimated too low. I’m making $30k in 2016, but I used to make much more. My Social Security benefit is pretty much pegged at $25k per year at this point. By using $17k/year for my Social Security benefit, they’ve pushed our probability of success down a few points.
Traditional financial advisor is too conservative
So 73% probability of success is pretty low and I wanted to see if they have any recommendation. Surprisingly, the first suggestion they gave me was to move more money into bonds. Currently, our stock/bond allocation is about 80/20. My risk tolerance* is moderately aggressive and they recommend a 55/45 allocation. Wow, that is way too heavy on bonds for me. Other advisors recommend anywhere from 10-30% bonds for my risk tolerance. Anyway, this didn’t improve our probability of success, but it did drive down the standard deviation. This means our portfolio will be less volatile.
Their other suggestion was for Mrs. RB40 to work longer, of course.
*If you need help figuring out your risk tolerance, see my asset allocation post here.
Turn around too long
I told them to fix a few things and they will run the numbers through and get back to me in a couple of days. A couple of days? That’s way too long. I want to see it now.
*Update – I got the 2nd pass result and it’s 87%. Much better than 73%, but still a bit low. In this model, we fixed the social security benefit and sold off one of the rental condo for a $300,000 cash infusion at 65. They really should include real estate holding somehow.
DIY retirement planning
So far, the financial advisor hasn’t added a lot of value for me. I think this service would be great for investors who have just started their retirement planning, but I’ve been thinking about retirement every day for years. For me, DIY retirement planning is better because the tools are available for free on the internet and I can see the result much quicker.
Free Retirement Planner
This is why I love Personal Capital. They have a great Retirement Planner which is very easy to use (and it’s free!) I can fill in all the numbers myself and see the result instantly instead of having to wait a couple of days. It also takes a lot less time on the phone. That phone meeting with the financial planner was exhausting.
Here is what I have in my Retirement Planner.
Our real estate situation is a bit unusual so it is way easier for me to input the numbers myself than to explain it.
More about real estate properties
We live in a condo right now, but we’ll probably move into our rental home in a few years. We’ll most likely sell this condo and that will bring in about $100,000. Currently, we have about $3,000 per year in rental income from our duplex. That would disappear when we move into the duplex. I plan to sell the place when RB40Jr goes to college so we can travel the world for a while. This should be a big payday for us and I expect about $750,000 in cash infusion. Of course, plan can change and I will be able to get instant feedback from the Retirement Planner tool. It’s also a lot easier to try different scenarios than to give them to a financial advisor to run. It’s just a lot of back and forth.
Here is our result from Personal Capital – You’re in great shape for retirement (over 95% probability of success.) We forecast that your portfolio will comfortably support your goals, including $55,000 per year in basic retirement spending.
This graph is generally what I expect. We’ll see a slower growth as we withdraw about $10,000 per year from our portfolio when Mrs. RB40 retires. I also added $6,000 per year for health care at that time. In 12 years, we’ll downsize and sell our home (the duplex). This will bring some cash at a good time because we’ll have college expense for 4 years. After that, the big events will be social security. As long as we can keep our expense around $55,000 per year, our retirement looks like it will be in good shape.
I also added $15,000 per year for travel once RB40Jr left for college.
Not the right fit
In conclusion, this full service firm is not the right fit for me for several reasons.
- The fees are way too high. It’s ridiculous to charge $350 to sell stocks. This is 2017 and they should be able to do a lot better than that. The annual fee bites, too.
- Their bond allocation recommendation is too high for me. We have 20 years until we’re both fully retired and hopefully 30 to 40 years after that. Putting 45% in bonds right now is the wrong move for us. Sure, it will give us less volatility, but that’s not my main concern at this point. Even if the stock market crashes like in 2008, I think we’ll have plenty of time to recover. Putting 45% into bonds will neuter our returns especially in this low yield environment.
- I like DIY. I like messing around with the numbers and seeing how the result changes. Our plan is flexible and there could be changes at anytime. Hell, this winter has been particularly dreadful and I’m about ready to move to Hawaii. I don’t want to wait a few days to get feedback from the financial advisor. It’s just easier for me to do it myself. It’d be a different story if the tools weren’t available on the internet, but they are so I’m making good use of them.
All in all, I’m not impressed with this full service brokerage. I will probably transfer my share to Vanguard to consolidate sometime this year. I believe it will cost around $100 to transfer the account, but that’s still better than selling my stocks and paying the fees. Ridiculous!
Have you worked with a financial advisor? Have you met a financial advisor who supports early retirement? Let us know if you have a good story to tell about your financial advisor.
DIY retirement planning
If you like DIY retirement planning, then check out Personal Capital. They have a really awesome retirement calculator that takes all your real data to run the Monte Carlo simulation. They are very helpful with tracking your investment accounts and checking your fees too. I log in almost every day to check on my investments. I highly recommend Personal Capital. (This is an affiliate link and we may receive a referral fee if you sign up through here.)
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.