May 18, 2018
Dear Everyone:
Who knew having money would be such a headache?
Of course, not having any money would be an even bigger headache.
Nevertheless.
Last year I received a letter, along with thousands of other employees
and retirees, from The Company announcing that all of our 401(k)
accounts were being transferred from
Vanguard
to Fidelity
Investments. Well!
Just like that.
Of course, I didn’t really have any reason to feel a particular loyalty
to Vanguard, any more than I did to whatever banking company we had used
before. Confidentially, I
don’t even know who that was.
The Company moved to Vanguard in 2001 after merging with (i.e.,
taking over) “Another Company”, and deciding that Vanguard was the
better choice as it had been used by “Another Company” and it was
relatively easy to give “those people” a tiny concession.
Now we’re moving again, for whatever reason The Powers That Be
have decided.
As for me, the transfer was pretty painless.
I received another notice that my account had moved, and
encouragement to set up an online account with Fidelity.
(Yet another login ID and password to keep track of!
Number 106 on my list).
They even had an online video especially for Company people.
And once I had the online profile set up, I was assured that my monthly
withdrawal would take place just as it had with Vanguard.
The only hitch was that I had to call an 800 number to switch
from receiving a check in the mail to having the funds directly
deposited to my account.
And that was all there was to it until last week when I received a call
from my “Personal Financial Adviser”, “Percy”.
“Percy” really wanted to meet with me to go over my whole
financial situation. In
person. At their office,
which is in nearby
Dublin.
Vanguard, as far as I’ve ever been able to determine, doesn’t have any
actual, physical, offices.
Just a lot of 800 numbers to call, depending on whether you’re a
personal investor, a retirement plan participant, an institutional
investor, a financial advisor, or a global investor.
I guess “none of the above” need not apply.
In contrast, Fidelity has offices on nearly every block.
Or so it seems.
So I drove over to Dublin and met with “Percy” two days ago.
He asked a few questions, to get my overall financial “picture”,
then babbled happily about investments, taxes, insurance, estate
planning and God-only-knows-what-else for an hour and a half.
By that time, my eyes had stopped whirling around and settled
down to just-plain-glazed-over.
But the most important thing “Percy” wanted to impart to me is something
called
Required Minimum Distribution (RMD) from my
401(k) account.
So far, I’ve been using the “rule of thumb” advice to keep
withdrawals below 4% of the total amount in the account.
All well and good.
But it turns out the
IRS
has other plans for that money.
Apparently, too many old people have been sitting on their money, then
passing it on to their heirs when the old people die, without the IRS
getting its hands on its share of the dough.
So the IRS made up a rule, based on how long the IRS expects the
old people to live.
I kid you not, they actually have an
actuarial table
that says that people who live to be 70-and-a-half years old should
expect to live another 24-½ years, reaching the mid-90s.
Now divide the balance in your 401(k) account by 24.5 and that’s
how much money you should be pulling out each year by six months after
your 70th birthday.
And, more importantly, paying
income taxes on.
Now here’s the really important part:
Even if I don’t take the full RMD, the IRS will.
To the tune of 50% of the entire “recommended” distribution as a
penalty.
Now, in my estimation, the IRS is being rather optimistic regarding my
longevity. Or, as “Richard”
put it recently, the “family expiration date” is a lot less than the
mid-90s. Speaking just for
myself, I’ve already got one foot in the grave and the other on a banana
peel.
Nevertheless, the RMD deadline is barely three years away.
Up until now, I’ve always prided myself on living “below my means”.
On the other hand, I might as well enjoy myself while I still
can. I have another meeting
with “Percy” next month, when I’ll increase my withdrawal to get closer
to the RMD. And decide to
rollover my account from The Company suite of investments to the broader
Fidelity choices, something that will make “Percy” very happy since he
can then charge “tiny” fees for various adjustments to my portfolio.
Like I always say sometimes:
Carpe diem!
Love, as always,
Pete
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