How to know If you’re on track for a nice retirement
October 22, 2009 · Tagged with Retirement
Vanguard Financial Plan
Cost: What you’ll pay depends on how much money you have at Vanguard Group Inc. The program is free for people who have at least $500,000 with Vanguard. It’s also free for those who move $100,000 or more to Vanguard. The cost is $250 for people with existing balances of $100,000 to $500,000, or $1,000 for those with less.
What’s Involved: The process at Vanguard was relatively efficient. A couple of days after filling out a questionnaire that took us approximately 30 minutes to complete, we received a draft of the Ryans’ financial plan via email. On the phone, we discussed ways to improve the Ryans’ prospects with our planner, Mark Yakupcin. Later that evening, Mr. Yakupcin sent us a revised plan.
Hand-Holding: Each client typically receives one 45- to 60-minute telephone consultation. Most clients “wouldn’t need another,” Mr. Yakupcin said. (He gave us some extra time.)
When we asked Mr. Yakupcin how much the Ryans ought to set aside for medical expenses, he referred us to Web sites, including medicare.gov and aarp.org, that would help us come up with an amount. Karin Risi, principal of advice services at Vanguard, said that with real clients, Vanguard financial planners “lead clients through a robust discussion about the variables that will impact their medical spending needs.”
Advice: After running more than 80 simulations of stock-market returns, Vanguard delivered bad news: The Ryans’ odds of having enough money to last until age 95 were far below the 85 percent Vanguard considers acceptable. Mr. Yakupcin suggested Jack and Rose work until ages 66 and 64, respectively — or pare expenses dramatically.
Portfolio Construction: Mr. Yakupcin urged the Ryans to increase their exposure to stocks to 50 percent from 40 percent. Such a portfolio — one of nine Vanguard offers — is consistent with the Ryans’ time horizon and risk tolerance.
When it comes to selecting new investments, Vanguard recommends only its own mutual funds. However, if you want to hold onto other companies’ products, Vanguard will plan around that. The company, in fact, builds two portfolios for each client. The first starts with current holdings you want to keep and adds Vanguard funds that can enhance diversification. The second assumes you’ll move most or all of your assets over to Vanguard products — a move that typically reduces annual expenses, the company says.
In both cases, Vanguard advised us to dump more than half of the Ryans’ $151,000 of IBM stock and plow the proceeds into two Vanguard funds: Vanguard Total Stock Market Index and Vanguard Value Index.
Plan Monitoring: Those with $500,000 or more at Vanguard can reassess their plan every year and revise it if necessary. Otherwise, you must pay for another analysis.