Q. My wife and I are 76 years old. We have no retirement fixed income other than Social Security. Our nice house is paid for. We have a nest egg of just under $1 million invested in three conservative portfolios of managed funds. The portfolios include domestic and some foreign equities, short-term corporate bonds, and considerable liquid accounts as a safety net.
It has grown a modest amount since I stopped regular-hour type work 15 years ago. We only take out only the Minimum Required Distributions. I have a part-time home business that will last about five more years. It enables us to travel and spend as much as we can enjoy.
We have a long-time financial manager who apparently works on a commission. Whatever it is, it must be lumped in with the other charges. We discuss your advice on low fee investments. This arrangement has kept us financially comfortable. We also appreciate having someone watching out for us; because we do not follow markets and are rather passive other than annual strategy visits.
Making more money will not add to our quality of life, but it will increase our ability to aid an African community, and leave some money for our five well-off children. At our age I see a real danger of my managing my own investments, and it seems prudent to pay a financial manager. Does that rule out investing in the SPDR S&P 500 Index exchange traded fund or its equivalent?
I have a Morningstar Portfolio Snapshot dated 02-28-2014. It shows we are invested in variety of mutual funds, including some index funds. Here are two names: JNL P2-JNL/Mellon Cap Mgmt. S&P 400 Midcap Index A (USD) and JNL P2-JNL/Mellon Cap S&P 500 Midcap Index A (USD).
For the S&P 500 index fund the one-year return shown is 16.95 percent, standardized return. This is much less than I see for the S&P 500 average in the newspaper. How can this be?
I do not get an answer to explain the difference from my financial advisor. Also, the gross expense ratios are 1.85 percent and 1.84 percent respectively! Do I need an independent review, and by whom? —J.H., Lakeway, TX
A. From the information you have provided it would appear that your money is in variable annuities from Jackson* National Life. This means you are paying two levels of expense, one for each individual fund and one for the insurance “wrapper” fee that provides a death benefit and tax deferral. With gross expenses around 1.85 percent for index funds that are generally available for 0.20 percent or less, you are paying a substantial premium for the advice and service you are receiving.
So while you are comfortable with your arrangement and freedom from having to make financial decisions, you are giving up a very large portion of the return on your money. There are many Registered Investment Advisor firms that would be happy to manage nearly $1 million for about one percent a year. These firms would also act on a fiduciary basis, which means they have to put your interest before theirs. This does not happen when your “adviser” is a product salesman.
Here is a list of choices and their approximate annual expense, based on a $1 million account:
|Your current variable annuities||$18,500 a year|
|An account with a Registered Investment Advisor||$10,000|
|An advised brokerage account using American Funds||$6,300|
|A well-rated no-load diversified fund||$6,000-7,000|
|A well-rated Vanguard diversified fund||$2,500|
|A Do-It-Yourself Exchange Traded Fund portfolio||$700|
As you can see, it’s a very wide range. All but the last option will provide some amount of access to advice and support. When your “financial adviser” won’t give you an answer to a question about costs, it’s time to find an alternative that will serve you better. It’s your money.
Q. I am planning to go back to work. I am drawing Social Security, but at a low rate because I have a 403(b) retirement plan. Can I get my whole Social
Security benefit while working full time? —B.S., by email
A. It depends on your age and how much you earn. If you are between 62 and full retirement age (66) you will lose a dollar in benefits for every two dollars of earned income over $15,480 in 2014. Here is a link to a Social Security document that explains it all: www.ssa.gov/pubs/EN-05-10069.pdf.
*Correction: In an earlier edition the insurance company was misidentified as Jefferson National Life.