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Helping in-laws with retirement

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  • Avatar SaintHog10 
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    Any advice would be great. My in-laws are nearing retirement. They own a couple million dollars worth of rental property and plan to hire a property manager in retirement (currently managing themselves) to maintain income in retirement. This is their main source of income for retirement. They also have ~$220k in traditional IRAs held at Edward Jones. The fee structure there is well-hidden, but looks like they are paying somewhere in the range of 2% more per year in fees between the high expense ratios, AUM, and account fee than what they could be paying at vanguard. They are invested aggressively in mostly stock mutual funds. I have convinced my father in law to call up his “FA” at Ed Jones to get a better idea of the fees they are paying him annually. My question is, do you guys think it would be worth it for them to roll their funds over to Vanguard at this stage of their life, considering they potentially live for another 30 years? I told them we could find similar index funds to what they were currently invested in if they didn’t want to veer from their aggressive 90% stock asset allocation, but that they’d come out ahead due to the low fee structure at vanguard. Any input is appreciated.

    #224359 Reply
    CordMcNally CordMcNally 
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    Status: Physician
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    Joined: 01/03/2017

    In short, yes. The advisor is likely to be fairly dodgy when asked straight up about the fees. You should be able to find the fees in the fine print. With it being Edward Jones, I suspect some of the funds were front-loaded with fees and are sunk costs. How much income do their rental properties provide in relation to how much they need?

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #224360 Reply
    Avatar SaintHog10 
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    Status: Student
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    Joined: 12/30/2018

    I agree about him being dodgy about the fees, best I could find by multiple sources online and directly through Edward Jones fee disclosures came out to about 2.18% annually between average ERs and AUM fee plus they charge another 2% to reinvest dividends and around a 2% front load on most funds they’re invested in. The income generated from rental properties will provide 100% of what they need for retirement, they mainly used the IRAs for tax deduction purposes and as a supplement in retirement which, in my opinion, makes the decision harder whether to move it or not. My father in law mentioned that he was even considering buying an annuity with the money in their IRAs- which I know is generally unadvised, but since it was supplemental anyways, I didn’t know if that wasn’t as bad of an idea as it generally is?

    #224364 Reply
    CordMcNally CordMcNally 
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    I wouldn’t make bad financial decisions just because the money is “extra”. I would still transfer it away from EJ.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #224368 Reply
    hatton1 hatton1 
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    Status: Physician
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    Joined: 01/11/2016

    I  would move the money to Vanguard.  They could use their Personal advisor service for 0.3%.  The loads are lost.  The accounting term is a sunk cost. Vanguard financial planners could really help in this situation.  When I moved my money from Merrill Lynch to Vanguard I never spoke to my broker.  Vanguard will do it for them.  I suggested the PAS since it sounds like your in laws know very little about financial investments.

    #224389 Reply
    Avatar Tim 
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    Status: Accountant
    Posts: 3071
    Joined: 09/18/2018

    I think you have a kind of obligation to keep your in-laws from making financial mistakes. How you accomplish that is the tricky part.
    1) Property management- as with any business, it still needs oversight. It’s usually too late AFTER owners get ripped off . Are they going to control the checkbook.? Checks and balances needed.
    2) IRA’s- EJ isn’t helping, that needs to end. Point them in the right direction.

    “Helping” means different things. They may be perfectly capable or may only “think” they are capable. Your wife needs get “buy in” from the in-laws and to what extent.

    Buffet’s rolling along nicely. Maybe they just need a nudge and advice. That’s a very personal decision with a lot of pitfalls.

    #224394 Reply
    Liked by SaintHog10
    Avatar snowcanyon 
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    They may be VERY attached to their EJ advisor- a lot of these older people are. You may be jumping the gun. IME, older people never leave their shysters.

    #224397 Reply
    Avatar SaintHog10 
    Participant
    Status: Student
    Posts: 17
    Joined: 12/30/2018

    I have discussed with them extensively and they are willing to part ways with this “advisor”. Also I mentioned Vanguard’s personal advisory service and that sounded like something they are interested in doing. I told them to take their time before making a decision because at this point an extra month or two won’t make a huge difference in the long run. Glad to get affirmation from you all about moving their funds away from EJ. They are very intelligent when it comes to real estate and being rental property owners/managers, but have always been uninterested in managing their own personal finances. They are more willing to have conversations now as I have been adamant that it’s not as complicated as most “FAs” would have them believe.

    #224402 Reply
    jfoxcpacfp jfoxcpacfp 
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    Would it be possible for you to accompany them to their meeting with their EJ dude? Might help avoid the awkwardness they’ll feel and allow them to defer to you. Might also prevent them from being persuaded to stay and being moved to something more “appropriate for this time of their lives” or whatever.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #224412 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 702
    Joined: 06/18/2018

    Better yet, never meet with EJ dude again. Open the account at Vanguard and initiate the transfer…no need to ever interact with the sleazy salesman that’s bilked them for years ever again.

    #224578 Reply
    Liked by Hank, SaintHog10
    Hank Hank 
    Moderator
    Status: Attorney
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    Joined: 03/27/2017

    Do your inlaws live near the rental properties?  Are they able to continue to manage the properties themselves?

    An 8-10% fee for property management can be a pretty big expense when you plan to live off of social security and rental income.  I’ve found that property managers can be pretty quick to approve unneeded maintenance at higher costs and lower quality than what I expect from tradesmen.

    #224765 Reply
    Liked by SaintHog10
    Avatar SaintHog10 
    Participant
    Status: Student
    Posts: 17
    Joined: 12/30/2018

    My FIL owns a small business in conjunction with the rental property and the manager of his small business also is trained to manage his rental property. So they are just planning to increase his salary accordingly as they retire and their manager takes on more of a role in the rental side of things as well as the small business. The majority property will be paid off soon and rental income will almost double at that point. I’m not worried too much about their rental property plans as they’ve made a good living off of that for longer than I have been alive. They plan to live at their current vacation condo for about half the year once retired and will be back in the same town as all of their rental property the other half of the year and I’m sure will be able to make sure everything is running smoothly.

    #224770 Reply

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