I am looking to provide some assistance to a relative who is trying to leave a high fee investment advisor. They are currently in approximately 20 mutual funds and etfs with an average expense ratio in the 0.5-1.0% range with a 0.9% advisor fee. I want to help them simplify their portfolio to a 3-5 fund portfolio at Schwab.
They are hoping to retire in the next 3-5 years. They are married and husband/wife each have an annuity that while in hindsight was not the best investment they are too far in to get out of. Social security will likely make up the bulk of their income, around $60,000/year, with two annuities each providing around $12,000/year. There is also an IRA with around $200,000 in it. The budget will be $80-90,000/year so the hope is that initially social security and the annuities will provide all of the necessary income.
The initial asset allocation that we settled on was 40% US Stock / 20% International Stock / 40% Bond using low cost etfs or mutual funds. The stock allocation seems straightforward but I was debating on what would be most appropriate for the bond allocation. I know it is popular to incorporate TIPS into the portfolio but since their income is primarily from social security which is already inflation adjusted I was leaning towards an intermediate term treasury fund for the bond allocation. My main concern is the reduction in real income in the future as the annuities will pay less in real terms due to inflation.
They also have a significant amount of equity in their home and are looking to downsize, I am hoping they will net an additional $50,000 from the downsizing and have a paid off house and I suggested they try to save $20,000-$30,000 over the next 3-5 years before they commit to retiring. They may also continue to work after "retirement" but at a reduced rate.
Any advice on how to best think about asset allocation in this situation would be helpful.
They are hoping to retire in the next 3-5 years. They are married and husband/wife each have an annuity that while in hindsight was not the best investment they are too far in to get out of. Social security will likely make up the bulk of their income, around $60,000/year, with two annuities each providing around $12,000/year. There is also an IRA with around $200,000 in it. The budget will be $80-90,000/year so the hope is that initially social security and the annuities will provide all of the necessary income.
The initial asset allocation that we settled on was 40% US Stock / 20% International Stock / 40% Bond using low cost etfs or mutual funds. The stock allocation seems straightforward but I was debating on what would be most appropriate for the bond allocation. I know it is popular to incorporate TIPS into the portfolio but since their income is primarily from social security which is already inflation adjusted I was leaning towards an intermediate term treasury fund for the bond allocation. My main concern is the reduction in real income in the future as the annuities will pay less in real terms due to inflation.
They also have a significant amount of equity in their home and are looking to downsize, I am hoping they will net an additional $50,000 from the downsizing and have a paid off house and I suggested they try to save $20,000-$30,000 over the next 3-5 years before they commit to retiring. They may also continue to work after "retirement" but at a reduced rate.
Any advice on how to best think about asset allocation in this situation would be helpful.
Statistics: Posted by diversifire — Tue Jun 11, 2024 2:55 am — Replies 0 — Views 7