Jackie is sold on Paul Merriman’s “Four Funds” approach, but she’s overwhelmed by the logistics of diversifying her single fund portfolio.. What are the best practices to redistribute her investments, handle taxes, and manage rebalancing?
Heidi’s mother recently passed and she’s struggling to decide between distribution options, their tax implications, and investment options for the annuity she inherited.
An anonymous caller and her husband want to buy a second home, pay for their children’s college, buy a car in cash, travel well, and save $3 to $4 million for retirement. How do they prioritize and manage their competing goals?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Jackie asks (at 02:26 minutes): My husband and I are in our late 30s, and your insights have convinced us to shift away from our current approach of keeping everything in Total Stock Market and S&P 500 index funds. Instead, we’d like to follow a strategy similar to Paul Merriman’s “Four Funds” approach.
But here’s where we’re stuck: the logistics.
We have $1 million in investments spread across nine accounts: we each have a 401(k) through our employers, a Roth IRA, a traditional IRA, and an HSA. We also share a brokerage account.
They’re all invested in broad index funds, but we don’t have much experience selecting investments beyond that.
Do we need to pick new funds for each account to diversify? If so, managing nine accounts seems overwhelming and far beyond the “45 minutes a year” approach Joe recommends.
We’re also unsure about tax implications. Will selling our current funds to buy others trigger taxes? And how often will we need to rebalance all these accounts—every year?
Heidi asks (at 32:39 minutes): My mother recently passed, leaving an annuity of $500,000. The advisor suggested a 10-year distribution at $5,000 monthly, but I’m considering a 15-year option to reduce the tax impact.
My husband and I are in our early 30s. We have a combined income of $160,000 and are in the 22 percent tax bracket. Which approach is most beneficial, and what else should we know about investing this money?
Anonymous asks (at 52:30 minutes): I’m struggling to figure out how to prioritize our financial goals, and I’d love your advice.
I’m 34, my husband is 40, and we have two kids, ages one and five. We earn $265,000 annually (pre-tax) and have the following financial snapshot:
- Retirement accounts: $200,000 in mine and $100,000 in my husband’s, with both of us contributing enough to get our 5 percent employer match. We’re also eligible for pensions but we’re unsure of the payout.
- Brokerage account: $8,000.
- 529 plans: $9,000 for our five-year-old and $1,000 for our one-year-old.
- Savings: $12,000.
- Home: We own a townhome worth $600,000 with $415,000 left on the mortgage at a 2.5 percent interest rate.
Here are our goals:
- Retire comfortably with $3 to $4 million by age 60, travel often, and enjoy financial freedom.
- Buy a larger home in 5 – 10 years while keeping our townhome as a rental property, since we live in a college town.
- Pay cash for our next car.
- Fully fund our kids’ 529 plans to cover their college tuition.
- Take two vacations a year—one in the summer and one at Christmas to visit family.
We know we should save more, but how do we approach these competing priorities? Should we focus on one goal at a time or divide our savings among them?
Should we base it on time horizons or the amount of money needed for each? And where should we put the money—general savings, specific accounts, or something else?
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