Alternatives to a Money Manager Gift Horse

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Q: We are rolling over my wife's $160,000 lump sum retirement into a managed account with our bank. She's 55. Wells Fargo charges 1.5% a year and a 1.5% load for the Wells Fargo fund we are going into. We're not too experienced with investing and aren't sure where to put the rollover. We will need about $950 a month from that money. Are the costs in line with other banks? Is this something I could do? Any suggestions? — S.D., by e-mail

A: You need to rethink this before the account is rolled and suffers commission expenses from transactions. First, you should check that you understand correctly exactly what you are going to be charged. If you are choosing one of its adviser-managed programs, the 1.5% annual management fee will be in addition to the expense ratios of the underlying mutual funds. If it uses Wells Fargo funds, you'll find that this could add another 1.2% a year or so to the total expense.

That would be a total cost burden of 2.7% a year — a heavy cost to bear when safe 10-year Treasury obligations are yielding only 3.65%. Add that to the withdrawal rate you are seeking, 7.1%, and your investments would have to provide a gross return of about 9.8% a year to break even. That isn't very likely, so you'll probably run out of money at a very inconvenient time, like age 75.

You can increase your odds of success by doing two things. First, find a far less expensive way to invest the money. Dodge and Cox Balanced fund (ticker: DODBX), a star long-term performer, was recently reopened for new investment. Its expense ratio is only 0.52%. That's less than half of the expense of the comparable Wells Fargo fund, and you won't have the 1.5% management fee, either.

Another long-term star performer to consider is Fidelity Puritan (ticker: FPURX), with an expense ratio of 0.60%. Fidelity has the additional advantage of brick-and-mortar offices and people trained to help you complete the rollover. Still another is Vanguard Wellington (ticker: VWELX), with an expense ratio of 0.30%.

Note that each of these paths will save you at least 2% a year in expenses — expenses that are subtracted from the return on YOUR money.

The second step is to reduce your spending to a level that the portfolio can survive. It is unlikely to survive a 7% withdrawal rate, regardless of who manages it, particularly if future withdrawals are adjusted upward to preserve your purchasing power. You can read about withdrawal rates and portfolio survival on my Web site (

Q: I'm a 41-year-old woman with a baby and a husband who makes a modest salary (less than $60,000). I've decided not to return to work full time and must now decide what to do with my 401(k) savings. It's a small amount — about $6,000. Given the shaky market conditions, what are my best options? I already have an IRA with Fidelity, which contains rollover 401(k) money. — D.F., by e-mail

A: Your best option is to roll the 401(k) account into your existing rollover account at Fidelity. This will save you from what some call "scattered asset syndrome," where your money is lodged in a half-dozen or more accounts, all sending you confusing monthly statements. By consolidating into one account, you'll have one account statement and Fidelity statements are very lucid. You will know, at a glance, how your savings are doing.

I'm sure you are tempted to cash out the account. But don't. Based on your husband's income, it would probably take him at least a year — probably two years — of contributions to achieve the same value. Measured in years of new contributions, it's not a minor matter. So let it grow.

Q: Repaying the Social Security funds that I've received since age 62 (for 8 1/2 years) makes sense for my situation. In addition to the advantages listed in your recent column, another bonus is that my spouse, should she survive me, will be entitled to some of my increased benefits for the remainder of her life.

I have paid income tax on 85% of the Social Security benefits I received. If I give it all back now, can I file amended tax returns for each year since 1999 and get refunds on the amounts returned? — J.C., Corpus Christi, Texas

A: Yes. If you paid taxes on the benefits you received but are returning, you are eligible for a tax credit equal to the amount you paid in taxes on those benefits during the earlier years. You can read more about it on the IRS Web site by downloading publication 915 (

Better still, have your accountant read it. This is complicated stuff.

This was the most common reader question about my recent column on reapplying for Social Security benefits, probably because the people who have the assets to repay earlier benefits are also likely to have been paying taxes on most of their Social Security benefits. About 20% of all beneficiaries are now paying income taxes on a portion of their benefits.

Questions about personal finance and investments may be sent by email to or by fax to 505-424-0938. Please visit my website at to comment on any of my articles, find referenced web links or to discuss personal finance topics on my forums. Questions of general interest will be answered in future columns and on my website.


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On the net:Here's a link to the original column. It contains multiple links to Social Security Web site sources, etc.

"Raise Your Living Standard, Reapply for Social Security" (2/15/08):

IRS link to publication 915 with information on filing for tax credits: If this article has helped you in some way, will you say thanks by sharing it through a share, like, a link, or an email to someone you think would appreciate the reference.

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