I prepared a list of questions after I reviewed the financial plan from the Vanguard advisor. She called me at the appointment time, on time. She also set up a web video conference so that I could see her.
According to disclosure documents, the advisor is in her early 30′s, with CFP® credential. She’s been with Vanguard between 5 and 10 years, in the advisor role for 3 years.
I’m listing some questions and the gist of her answers here for you to see the breadth of the consultation session. Some questions were a quiz. She probably knew and just went along.
Question: The plan recommended Vanguard funds in Fidelity accounts. Is it better to use Vanguard ETFs there? What about Fidelity’s index funds?
Answer: Using Vanguard ETFs is better because Fidelity doesn’t offer Vanguard Admiral shares. Fidelity Spartan funds are just as good.
Question: The plan said we should sell CDs and buy bond funds. Should we really do that?
Answer: Keep the CDs.
Question: Right now we overweigh value and small cap stocks. Is it OK to overweigh value and small cap?
Answer: If you understand the strategy, moderately overweighing value and small cap is fine.
Question: How do we manage withdrawals after we retire? Just set up monthly automatic withdrawals from stock and bond funds?
Answer: Keep 1-2 years worth of expenses in cash. Replenish once a year.
Question: Where should fixed income go? Muni fund in taxable or taxable bond fund in IRAs?
Answer: Keep munis in taxable until you retire. Switch to taxable bond fund in IRAs after.
Question: Should we get more term life insurance after we retire?
Answer: No, you don’t need it.
Question: If we buy a home after we retire, should we pay cash or get a mortgage?
Answer: Get a mortgage if the rate is low (3-4%). Pay cash if the rate is high (7-8%).
Question: Should we contribute to a Roth 401k instead of traditional 401k?
Answer: Stay with traditional. Slowly convert to Roth after you retire. Pay tax on the conversion out of your taxable account.
Question: From which accounts should we withdraw after we retire?
Answer: Draw from taxable until you are 59-1/2. Then take from traditional IRA, which reduces your RMD. Draw from Roth last.
Question: Should we claim Social Security early or late?
Answer: In general wait at least until full retirement age. Look at your portfolio size then. Take it early if your portfolio is running low to give it a break.
Question: If we don’t claim Social Security until 70, will we still get Medicare?
Answer: You will still get it at age 65.
Question: The retirement outlook says our success rate is very high. Can we really withdraw 4% plus inflation for 50 years?
Answer: With a long retirement horizon we are recommending 60% in stocks. You are also going to stay at that level for a longer time. This will help the growth, which makes your withdrawals sustainable.
It was a good conversation. Even though the written plan was heavily focused on portfolio construction, the advisor was able to speak to a wide array of topics such as the withdrawal rate, converting to Roth, Social Security, life insurance, home mortgage, and so on.
I read people say Vanguard is rigid or cookie-cutter. The written plan may give that impression but the advisor was actually quite reasonable. She was fine with my tilting to value and small cap, and with using CDs and muni fund instead of the total bond market fund. She even said Fidelity Spartan index funds were just as good as Vanguard funds!
We can quibble with some of her answers and analyze to death how the answers can be improved. I would say she hit the target, maybe not exactly bullseye for every question but on target. I would be happy if someone not as obsessed with these topics received this set of answers.
[Conclusion: Vanguard Financial Plan Review: (4) Worth It?]
[Photo credit: Flickr user SalFalko]