36 Replies Latest reply on Oct 27, 2014 8:01 AM by DRJJG

    Account Consolidation

    tozenne

      TIAA-CREF and other organizations suggest that retirees consolidate accounts or assets under one roof.  I see some advantages of doing this, but I worry that in a worst-case scenario, having all the eggs in one basket could be a problem.

       

      I have plenty of assets, mostly in tax-deferred accounts (conventional IRAs, for example).  About half are with one large firm, about 1/3 is with another firm, and the balance is with TIAA-CREF.  I have some real estate too, but that's another story.)  I know from experience that even large firms go broke, often surprising many of the public.  So I'm nervous about consolidating.

       

      Does anyone have a view favoring or disfavoring consolidation?

        • Re: Account Consolidation
          MyR Community Manager

          tozenne, thank you for creating a new discussion thread! We appreciate and enjoy your participation in the MyRetirement online community and look forward to your future contributions.

          • Re: Account Consolidation
            BoBraxton

            Your caution makes total sense to me. I have the majority in one firm, mostly to simplify. The truth is that while I have had a lot of fun with allocations during the investing years (adding maximum all the time), once it became time to retire, all that diversity causes me a lot of confusion - so just this past year 2013, I decided to make things simple. However, I still have about 1/6 as great an amount in one other company (mutual funds), specifically all are overseas, outside the U.S., equity mutual funds. These are very volatile but in about eight sections of the globe, so when one falls a lot, I just shift an equal amount from one that is going up (the opposite). So, I concur that while consolidating, not everything in one. Earlier I figured that if I had 20 different investment pockets, 5% in each, then even if I lost everything in one of them (but not all) that would be tolerable for me to accept.

              • Re: Account Consolidation
                tozenne

                I guess you are a big fan of rebalancing; I'm not. 

                 

                For rebalancing to make sense, as I see it, one has to divine what the optimal portfolio weights are supposed to be--maybe now, maybe at each rebalancing.  For me, this would mean essentially weights equal to the assets value relative to the rest of the world.  I have no idea how one might do that. 

                 

                Rather, I seek to hold a portfolio that is more or less equal to "the market."  For U.S. investments, a few broad indexes get one pretty close.  Going offshore is a bit trickier since I don't know what share foreign assets should be, a problem made worse by oft-repeated statements that many foreign investments are not priced in open markets. 

                 

                I don't think having a "manager" picking weights makes any sense, nor do I see any virtue in having investments through 20 different brokers if one first knows what weights are right.  

                  • Re: Account Consolidation
                    BoBraxton

                    Totally agree - on all counts. Basically all mine are in one fund (name of fun) moderate index(ed). This not only tracks "the market," it IS the market (neither the Dow industrial nor the Nasdaq). As far as re-balancing, I have international (world, excluding the U.S.) several (seven or more) funds by regions of the world. Perhaps once a year (arbitrary time) my "re-balancing" method is to see which funds have gone up the most and those that have gone down the most. Then I take the difference ("average") and exchange enough of the UP funds to decrease it close to that dollar value, purchasing the much cheaper shares to bring the DOWN fund(s) up close to the "average" between the two. For me this is a Contrarian strategy. Since this is only a part of my investments, I am content with what returns (or not) since the main point is that the rest of the world may go a different direction (or multiple directions) from the domestic U.S. market during any given span of time.

                      • Re: Account Consolidation
                        JerryD

                        Then there ares some of us that think that "allocation" and "rebalancing" are concepts invented by brokerage firms to keep your money invested with them. Oh, you might also add "dollar-cost-averaging" to that list. Investing by averaging is IMHO a hope, you could substitute "bet",  that spreading it around will somehow find winners that cover the losers. But then, did that work well in 2008-2009? Just a thought.

                          • Re: Account Consolidation
                            smaneck

                            Dollar cost averaging is recommended by most financial advisers not just to get your money but because the average person gets it wrong when they try to 'time' the market. I think I usually get it right therefore when my contributions go into TIAA-CREF they go into a money market account first and then *I* decide where it is going to be invested that month.

                    • Re: Account Consolidation
                      jocee

                      I am in the process of consolidating accounts too.  The last couple of years I spent rounding up IRAs from the many jobs I had and getting them boiled down to 2 accounts rather than 5.  It is important to have consolidation for 401/403 & IRAs as you approach 70 and must take the RMD.  There are penalties if you don't take the required amount from these sources and I don't want to have to pay extra.  My husband has never been interested in our finances but lately he is freaking that if something happens to me, he won't know what to do.  So consolidating various fund companies and keeping easy to understand records has been my goal the last couple of years.

                       

                      I also think consolidating is a good move for any heirs who may have to take over your finances and will struggle to make heads or tails of all the paperwork.  We recently had to take over my in-laws finances and were lucky that one of them was still lucid to explain where things were.  It was NOT helpful that the person with dementia was given a shredder to "clean up all their paperwork".  We are also lucky that he must have been doing it on his "good" days because there were only a few mysteries to solve.  I have new empathy for those who must struggle to manage the affairs of others.

                        • Re: Account Consolidation
                          BoBraxton

                          Of course it is only the Traditional IRA that has Required Minimum. My spouse and I each have that Traditional Account but each also has Roth IRA (we paid all the taxes when Roth first became an option and contributions since then also were all taxed) plus a small inherited - taxable investment fund / account - in total, three each - with the same company.

                          • Re: Account Consolidation
                            AlanCS

                            Your required Minimum Distribution is required to begin by April of the year you turn 70½.  The good part is that you can choose to take the RMD from each account, or the combined amounts from a single account.  The ROTH IRA does not have any RMD, so that account can be used to offset inflation in later years.

                             

                            I am not planning to take a monthly amount until late in life, as that would effectively end any changes due to investments.  Most annuities allow up to 4 withdraws per year, so I will pull an amount to cover 3 to 6 months at a time.  As long as I am taking at least the RMD amount each year, I am good.  Then the remaining values will continue to grow.

                             

                            The idea of spreading your risk among a few companies is smart.  You consolidate the number down until you are comfortable with your bookkeeping.  Then follow to see which company makes the best investment decisions, to give you a better return.

                              • Re: Account Consolidation
                                sktn77a

                                Actually, your first RMD must be taken by April 1st of the year AFTER you turn 70½.  However, if you wait until then, you must take an additional distribution before December 31 of that same year (effectively taking 2 RMDs in that year).

                                • Re: Account Consolidation
                                  BoBraxton

                                  Being able to grasp and understand the reports of funds performance is my major concern as I age (70 and beyond). Right now I am able to comprehend since except for international (excluding U.S.) there is essentially one number for me, which fluctuates by the day (when market is operating).

                              • Re: Account Consolidation
                                JoeW519

                                When I took over for my mother a few years ago, she had 32 accounts in 9 financial institutions. It drove me nuts and I simplified by reducing them to 5 companies.

                                 

                                Please think of your trustee, POA, beneficiary, executor, etc. No reason it can't be simple.

                                 

                                I had the same thought as you re: "diversificatiion" of managers, but I don't share the worry so I'm boiled down to 5 institutions, but the bulk is with one (and a series of investments via them for diversified investment).

                                  • Re: Account Consolidation
                                    BoBraxton

                                    There is but one "manager" of my / our investments -- he and I share the same skin.

                                      • Re: Account Consolidation
                                        JoeW519

                                        a confusion of terminology maybe, BoBraxton: companies like TIAA, Vanguard, Fidelity, et al manage the accounts. The decision of a "financial manager" re: strategy, etc., is separate. Or do I misunderstand you? Thanks for your comment in any case. Joe

                                          • Re: Account Consolidation
                                            BoBraxton

                                            In my case, neither the company nor I engage in managing the Fund - since my choice is pure indexing. The company does have to pay in effect a Royalty for the make-up of the indexed very low-fee fund of my choice. My terminology is "monkey investing" because other than deciding to invest (put money in and in and in) there are no decisions during the build-up of assets. Another approach could be "throwing darts" but I feel most comfortable riding the sea level. When the water level goes down, my boat floats down. When water level rises, my boat rises. When the waters rage, my boat bounces a lot.

                                        • Re: Account Consolidation
                                          Heather G

                                          As the POA for a terminally ill parent with a million accounts, I really appreciate your comment.  I actually had to drive from bank to bank the other day with a pile of checkbooks trying to figure out what was going on - many of the accounts ended up being closed, but there were many others open/active.  I have begun to consolidate my own accounts and create a list for my executor so I don't make her insane when I pass!

                                            • Re: Account Consolidation
                                              BoBraxton

                                              When I drew up a lot of details for the benefit of our offspring (now age 43) he suggested "put it on a USB (flash drive)"

                                              We have a "crate" with all the legal documents filed in one place so I think he meant he would like to have all this information in a spreadsheet / workbook on a flash drive lying in one of the file folders (hanging) most appropriate.

                                          • Re: Account Consolidation
                                            Ailene

                                            After trying to diversify management to avoid meltdowns by specific institutions I found that consolidating with a reputable organization was so much easier.  I like the advice offered by my financial advisor and basically trust the institution which serves so many non profits and academics.  Life itself become more complicated as we age.  We are also less in touch with the changing financial environment after we retire.  It is important to trust whom you work with but continue to verify.

                                              • Re: Account Consolidation
                                                BoBraxton

                                                We are only three years into our retirement so all this is still quite new for us. I agree that life gets more complicated going through and after retiring. I would have been much more better equipped emotionally to handle all this when we were in our twenties and thirties. Why is age wasted on the aging (such as myself)?

                                              • Re: Account Consolidation
                                                JerryD

                                                I have read above some concern over using one firm for retirement accounts. It is very unlikely that a very large firm would have problems. Consolidating makes life, decisions and monitoring easier. IMHO

                                                 

                                                I also totally agree with the thought that you need to manage your own funds as much as you can as long as you can. Nobody cares more about your money than you do - a hard and expensive lesson I learned when using paid managers. Get advice and educate yourself but be very cautious about letting somebody manage your funds for a fee. If you have to, consider paying for advice on strategy infrequently but not for on-going investment actions. IMHO

                                                 

                                                We did indeed consolidate retirement accounts. One needs to have a clear set of goals and a small number of good investments that one can understand, monitor and manage. Trying to keep up with the 1,000's of mutual funds. ETF's, stocks, bonds is nearly impossible and even harder as one grows older. I did a lot of that when younger and it is difficult and stressful. We have chosen highly diversified investments with a large number of individual items and good but modest returns to reduce risk.

                                                 

                                                Whereas I am not currently considering annuities, many find the constant flow of funds soothing when essential expenses are covered. Should I or the family detect that bad investment decisions are being made, an annuity may be considered to cover essential expenses along with very conservative, principal-preserving investments to protect assets for the survivor and estate. IMHO.

                                                 

                                                All of this is much easier when dealing with one firm that you understand and trust. IMHO

                                                • Re: Account Consolidation
                                                  tozenne

                                                  It is indeed unlikely that a "big" firm will go belly up and leave investors high and dry.  But we should all know that GM was not too big to fail!  Likewise, several large financial firms have suffered bad fortunes in recent years.  Plus, while I was employed, we were engaged in a re-evaluation of our credit risk in natural gas deals, and we concluded that Enron was as solid as a rock--sortly before it went belly up.  My point is that even large firms hide their troubles as long as possible; by the time retail account holders sense that there may be trouble, it is likely too late. (I had that happen to me with a "safe" bond fund from a large player just a few years ago.)

                                                   

                                                  Plainly, one doesn't want to track a thousand assets, and basic theory says doing so doesn't lead to higher returns.  Having small sums at several different brokerage houses might be fun for a while, but it does complicate life for successor trustees and others who may come next.  Also, many investment companies offer minor advantages to clients based on having some minimum invested.  On the other hand, Quicken does a fine job consolidating investments spread across various brokerages or institutions, and it is really pretty easy to add up one's end-or-year IRA amounts to find next year's MDR, so I don't see much gain from actually going from three or five institutions to just one or two (other than smiles from the winning broker/advisors). 

                                                  • Re: Account Consolidation
                                                    KwP

                                                    I diversify my holdings into at least 5 different institutions and about 7 different funds because I believe God has greater insight than me when he says:

                                                    1) Give a portion to seven or eight because you don't know the troubles that may come about.

                                                    2) There is safety in the multitude of counselors.

                                                    3) And, a three-fold cord is not easily broken.

                                                     

                                                    Also, Christ in his parable showed the master giving talents to 3 different people and minas to 10 different people to to carry out his wishes. I like that kind of simple safety, otherwise the Madoffs, Stanfords, and Enrons of the world may dupe you and wreck what you've worked hard for and been blessed to accumulate.

                                                      • Re: Account Consolidation
                                                        BoBraxton

                                                        Agreeing. I, too, listen. Generally after I have slept overnight (with some night dreams) there is some (implied) direction to which I do pay attention. Instead of having to figure things out, I pay attention to the silence.

                                                      • Re: Account Consolidation
                                                        Art

                                                        One thing for sure is that you don't want your retirement portfolio to be invested entirely in one "corporation". A lot of folks have their eggs in one basket, the company they currently work for or worked for in the past. Corporations fail all the time, and it can be tough to recoup your funds from a bankruptcy. Spread it around.

                                                          • Re: Account Consolidation
                                                            BoBraxton

                                                            For more than a decade I worked for a "small" company which did not even offer a retirement of any sort. That was the middle period of my "career." In the third period (of three), my employer first switched to "defined contribution" from "defined benefit" retirement. When they added TIAA-CREF the funds already invested in another institution were allowed to continue. My choice was 50 - 50 - half for the remainder of the years in the "old" outfit, half in TIAA-CREF and I was pleased with the results of putting the eggs in two nests.

                                                          • Re: Account Consolidation
                                                            DRJJG

                                                            My response is to diversify. When you are retired you have the time to do all your own investing, However, if you are not confortable doing that then chose a financial firm that offer the lowest fees possible and has a good track record. I would not worry about them going out of business during a recession, casue the Fed will bail them out just like they did 5 years ago.

                                                            • Re: Account Consolidation
                                                              smaneck

                                                              I used to have my money with two different firms but now TIAA-CREF has all my 451, 403B, and IRAs. The only thing I have elsewhere is a solo401K which allows me to make some non-traditional investments like real estate. I may also use my solo401K to buy a Qualified Long Term Annuity if TIAA-CREF doesn't come up with one first. Right now, I'm waiting until interest rates rise to buy one.

                                                              Somehow I don't see TIAA-CREF tanking unless everyone else does.

                                                              • Re: Account Consolidation
                                                                Richie

                                                                I thing to consider is the amount of insurance on an account. Many bank accounts are covered by FDIC, maybe not CD's.

                                                                For other finance companies there is SPIC. I don't remember the amounts but it is something to consider. There are also at least 2 kinds of risks to consider. One is market risk, that the investment you made goes down in value, no insurance here. The other is that the firm you have your accounts at goes under, that's where the insurance comes into play

                                                                • Re: Account Consolidation
                                                                  JoeW519

                                                                  Lots of good if basic investing advice in this thread ... it's clear that self-discipline has had good results for all of us (or else we wouldn't have arrived at this forum and this post). But I'm a little uncomfortable that so many people seem to be searching out the ONE TRUE WAY to get safe, maximum returns ... no, no one says that, but it's subtext for many posters.

                                                                   

                                                                  The 'one true way' is simple -- it's whatever lets you sleep well at night. That I'll argue is all. That's the goal.

                                                                   

                                                                  And to get there, use some common sense: diversification makes sense. And once you diversify, depending on your personality, you'll want to rebalance at some point based either on time or returns.

                                                                   

                                                                  I once was an active trader -- individual companies and individual bonds and investment real estate. Hardly a day went by without some sort of activity in my accounts or holdings. It went well and I did well enough. But......two things changed: I got older and the limitations of age made for less confidence; and, I got tired of crunching numbers all the time.

                                                                   

                                                                  So I am out of real estate (too much effort and networking); I'm using indexed mutual funds: large cap US growth and value; European and Emerging Market, and diversified corporate bond funds (my TIAA holdings are in fixed annuities). I also have emergency and contingency funds with conservative bond funds holding the principal.

                                                                   

                                                                  Last year of course was wonderful; this year is still above the target; and the two years average appx 25%. No, I don't expect my returns, or my wife's commission income, to keep up a heavy pace -- and yes, I lost some in the Recession -- but I'm relaxed with what I hold. I only rebalance once a year.

                                                                   

                                                                  Some have posted that rebalancing assumes a correct or ideal set of positions. That of course is impossible for mere humans. Instead, I balance so it makes sense to me and that makes me comfortable. I'm willing to absorb losses for my assumptions, but not discomfort. Meanwhile, we're able to give generously to our church and to the poor.

                                                                   

                                                                  Those are the things that are priorities ... after all, I'm retired.

                                                                   

                                                                  I hope this makes sense to someone else. Best wishes,

                                                                  Joe

                                                                    • Re: Account Consolidation
                                                                      BoBraxton

                                                                      wholeheartedly I agree with being comfortable with assumptions and decisions (personal) and sleeping well at night. I agree with my own slowing down with age coming on. A lot of things I enjoyed and thrived on in my 20's and 30's interest me much less as I go into my seventies. For me, 2013 and 2014 so far have turned out good -- even at best half of what you report, I am content and amazed. My expectations are much lower, including willingness to absorb some "paper" loss(es) depending on the market moves (volatility) - unknown future. Yes, this is retirement.

                                                                        • Re: Account Consolidation
                                                                          JerryD

                                                                          I prefer to not define it "as slowing down" but "stopping chasing the carrot". Now is the time to preserve and live without the stress of chasing the highest returns that are accompanied with high risk. Big mistakes at this stage of our lives have little time for correction.

                                                                            • Re: Account Consolidation
                                                                              JoeW519

                                                                              I agree Jerry. And I like the "carrot" reference ....

                                                                               

                                                                              So far as slowing down goes -- yeh the body doesn't work like it once did, but I'm as busy as a cow peein' on a flat rock! (Old midwestern saying ;-) ) I was talking to my girl Teresa last week and wondered how I ever had the time to work for a living! And this afternoon, I admit to taking an hour to sit on the front porch and read my bible. I wouldn't tell anyone but y'all.

                                                                               

                                                                              PS -- re: chasing returns -- I quit because A) I got tired of it and B) Index fund returns in general are better than the returns of managed funds. I'm older, a bit tired, but don't want to look a gift horse in the etc.

                                                                               

                                                                              Joe