I’m Retiring, Now What?

Reader Question:  I have about $280,000 in a 401k and plan on retiring in August of this year. I will need to use some of this money to supplement my retirement. What would you suggest I roll it into?

Answer:  Let’s discuss three options:

  1. Leave your retirement money with your soon-to-be ex-employer. Some people choose this option because it’s easy and they are used to their current investment options and their statement or on-line access.  Generally, this would be my least favorite option because often the total of fees you are being charged is significantly higher than if you were to roll the money over to a self-directed IRA.  You also typically have much fewer investment options with your ex-employer’s plan than the typical custodian such as Schwab, Fidelity or Vanguard.
  2. Rollover to a discount broker. Great examples include Charles Schwab & Company, Fidelity Investments and Vanguard.  These firms offer a vast array of no-load mutual funds, Exchange Traded Funds (ETFs) and individual securities (stocks, bonds, etc.).  While I think of these firms as best suited for folks who make their own investment decisions, they actually have experienced staff and advisors who can assist you.
  3. Hire professional investment advisor. Most people who retire soon find out that managing your investments when there is no paycheck coming in is far more emotionally challenging than when they were working.  A professional money manager can help develop an investment plan targeted to your specific retirement goals and help take emotion out of investment decisions.  Be sure to interview several advisors and ask them:
    1. How are you compensated? Do they receive commissions, fees or both?
    2. Are you a legal fiduciary? A fiduciary must place your interest ahead of their own interest.  The Department of Labor has passed a rule that would make all advisors legal fiduciaries beginning in 2017.
    3. What’s your investment approach for me? It should be customized to your particular situation.  If you don’t fully understand it, choose another advisor.

Reader Question:  My parents are in their eighties and are both in declining health.  The bulk of their estate includes a seventy acre farm where we all grew up and was passed down to them from their parents.  This farm holds sentimental value to my siblings and me.  I have two questions.  First, do they need a living trust or does it fall under the estate tax lower limit?  Second, what’s the best way to avoid squabbling among the three siblings over how to divide the land?

Answer:  Under current law, your parent’s estate would not be subject to estate taxes assuming it’s under $5.45 million ($10.9 million for couples).

The real estate could be handled several ways:

  1. Living Trust- Using a living trust, your parents should have the land surveyed now and divided into three parcels. Then transfer the three parcels into the trust which will indicate who gets which parcel at their death.  The living trust also has the advantage of avoiding the costs and time associated with probate while providing privacy regarding their estate and its disposition.
  2. Survey the land now and divide it into three parcels then update their wills to reflect who receives which parcel when the last of them passes away.
  3. Do nothing. This is almost always the path of least resistance but will likely result in the greatest amount of dissention among the siblings.  I strongly encourage you to share this article with your parents and encourage them to choose one of the first two options.

One question that is bound to arise is, “Once the land is divided, how do you (they) decide who gets which parcel?”  One simple idea would be to put three numbers in a hat (one, two, three); then allow each sibling to draw a number and who draws number one gets first choice and so forth.

If your parents are willing to take steps now they can potentially save a lot of heartache and hurt feelings down the road.  I strongly recommend consulting with a qualified attorney to work with the family on this issue.