Dear Liz: My wife and I are blessed to have a very significant income from real estate holdings that will provide us with almost enough money to live on very well for the rest of our lives. That leaves retirement accounts and Social Security as mostly discretionary or extra income.
Currently, we have 90% of our retirement accounts and Roth accounts in stock. I figured that, given our situation, we can afford the risk. We have the other 10% in an annuity. Just curious to know what you think of our aggressive position. Is it foolish, and should we be more conservative, such as having a portion in bonds?
A: Another question to ask is, “If I don’t need to take this risk, why should I?”
Most people need the growth that stocks offer to achieve their long-term goals, such as a comfortable retirement. Even in retirement, people typically need at least some exposure to stocks to offset inflation. To get that growth, investors must endure the inevitable downturns when markets slide. But why take on more risk than you need?
Also consider that real estate income isn’t typically guaranteed. While real estate and stocks aren’t closely correlated in the long run, both can be affected by economic crises. It might be painful to see your main source of income drop along with your stock portfolio.
A balanced portfolio likely would offer more modest returns but sounder sleep the next time the stock market swoons. This would be a great topic to discuss with a fee-only, fiduciary financial planner.
Dear Liz: This is concerning the couple in their 70s who were persuaded to move their nearly $2-million retirement portfolio to a different broker, resulting in a capital gain of $184,000 and a capital gain tax bill for $50,000.
The question I wonder is whether the $184,000 capital gain also kicked them into a higher Medicare premium bracket (which you frequently warn your readers about) or whether they were already in the higher bracket for other reasons (i.e. the amount of their annual required minimum distribution, plus the size of their Social Security or pension benefits).
The problem with their new broker is that this couple seem surprised to learn they would have a capital gain and a sizable capital gain tax bill by transferring their portfolio from their existing broker to the new broker. Shouldn’t the new broker, with its “fiduciary” duty, have warned them that they would incur a huge capital gain and a sizable capital gain tax bill and also checked to see what the influence of the capital gain would be on this couple’s Medicare premium (if any)?
A: The couple did not say they were surprised by the tax bill. They said their accountant was not pleased, which apparently caused them to question their decision.
Let’s define some terms. “Broker” in this context typically refers to a stockbroker. Stockbrokers normally aren’t fiduciaries, meaning they’re not required to put their clients’ best interests first. Instead,…
Read More: Should we be investing in stocks after retirement? – San Diego
