Episode 529: Assets Not Growing

Release Date: January 3, 2025
Podcast: Jill on Money with Jill Schlesinger
Host: Jill Schlesinger, CFP®
Producer: Audacy

Introduction

In Episode 529, titled "Assets Not Growing," host Jill Schlesinger delves into the challenges many face when their financial assets fail to grow as expected. Through a series of listener questions and expert insights, Jill and her co-host Mark Telercio explore strategies to optimize investments, manage inheritances, and navigate retirement uncertainties without falling prey to common financial pitfalls.

Listener Questions and Financial Strategies

1. Maximizing Inheritance and 529 Plans
   Listener: Anonymous from Dallas
   Timestamp: [02:46]

   Situation:
   Anonymous anticipates a substantial inheritance in over a decade and seeks advice on shifting from pre-tax 401(k) contributions to a Roth 401(k). Upon following previous recommendations, Anonymous and his wife switched to a full Roth 401(k) and engaged in gifting strategies with their aging parents.

   Key Points Discussed:

   • Gifting Strategy: Parents agreed to gift $8,000 each to Anonymous and his brother biannually, covering half of their son's daycare costs ($750/month) and doubling contributions to their one-year-old's 529 plan. They opted for a grandparent-owned 529 plan to avoid impacting the child's financial aid eligibility.
   • Consolidation vs. Multiple 529 Accounts:
     Mark Telercio: “It’s not the worst thing in the world. I mean, I would rather have one, but it’s not. If they’re fine with it, that’s all that matters.” [04:54]
     Conclusion: Maintaining separate 529 accounts is manageable, especially when aligned with financial aid benefits. Mark emphasizes focusing on taking the money as it comes rather than getting bogged down by account consolidation.

2. Investment Allocation and Avoiding Market Crashes
   Listener: Michael
   Timestamp: [06:00]

   Situation:
   Michael is four years away from retiring and is concerned about a potential market crash affecting his investments. He currently leans towards energy funds and a minimum volatility ETF, both managed funds, and considers using a six-month CD to stabilize his portfolio.

   Key Points Discussed:

   • Portfolio Allocation:
     Jill Schlesinger: Emphasizes determining the exact financial needs from the portfolio, such as providing $70,000 annually if that's the shortfall after Social Security contributions.
   • Cash Reserves:
     Mark Telercio: Advises locking down two years' worth ($140,000) in cash equivalents like CDs to safeguard against immediate market downturns.
     Mark Telercio: “But what you’re really saying is how do I not just get through the next four years? How do I get through the next [34] years.” [09:03]
   • Diversified Asset Allocation: Advocates for a balanced mix of stocks, bonds, cash, and potentially real estate or commodity funds rather than concentrated sector-specific investments.

3. Underperforming 529 Plans
   Listener: Heather
   Timestamp: [07:00]

   Situation:
   Heather is concerned that her children's 529 plans are underperforming despite a robust stock market. Her children are 11 and 13, and she's contemplating whether to switch to a regular brokerage account due to perceived low returns.

   Key Points Discussed:

   • Evaluation of 529 Plan Options:
     Mark Telercio: Reviews Heather’s New York 529 plan, noting a 50/50 split between stocks (34%) and bonds (23%), suggesting a more aggressive allocation if she’s comfortable doing so.
     Mark Telercio: “If you want to get crazy, Mark, what do you do? Do you do 70% stocks? And I mean, you can do the Vanguard stock index portfolio, and that'll rock it for you.” [10:15]
   • Target Date Fund Limitations:
     Anonymous Financial Expert: Highlights that target date funds gradually become more conservative as the enrollment date approaches, potentially limiting growth opportunities in the early years.
   • Recommendation: Continue with the 529 plan but consider adjusting the asset allocation to be more growth-oriented, especially since Heather still has several years before her children attend college.

4. Navigating Layoffs and Retirement Planning
   Listener: Beth
   Timestamp: [12:00]

   Situation:
   Beth, age 54, was recently laid off but offered a role maintaining her current salary. She's contemplating whether to accept the new position or retire early, relying solely on her savings and upcoming pension at age 60.

   Key Points Discussed:

   • Financial Assessment:
     Mark Telercio: Analyzes Beth’s financials, including a $2.5 million brokerage account and a $1.5 million 401(k), suggesting a sustainable withdrawal rate to support her monthly expenses of $9,000.
   • Withdrawal Strategy:
     Advocates for setting up a systematic withdrawal from her brokerage account to cover immediate expenses, followed by utilizing her 401(k) and future pension to bridge any gaps until Social Security kicks in at age 70.
   • Tax Considerations and Diversification:
     Advises balancing withdrawals to manage tax implications and ensure liquidity remains for unforeseen expenses.
     Mark Telercio: “I would make sure if that's the case, just remember what you have to do. That brokerage account's got two and a half million dollars. We got to set this up right now so that you can have $100,000 a year come out of that.” [14:04]

5. Evaluating Fixed Target Annuities in Retirement Portfolios
   Listener: Linda
   Timestamp: [16:00]

   Situation:
   Linda and her husband, nearing retirement, were advised by their Fidelity Advisor to allocate a portion of their $1 million portfolio into fixed target annuities. Skeptical about annuities, they seek guidance on whether this is a beneficial strategy.

   Key Points Discussed:

   • Understanding Annuities:
     Mark Telercio: Points out that Fidelity offers lower-cost annuities without hefty commissions, questioning whether the primary benefit is guaranteed income versus portfolio flexibility.
     Mark Telercio: “The problem, I think, is that what they're trying to do is give you income, which is great. I'm wondering if there's a way to do it from the portfolio itself.” [17:08]
   • Liquidity Concerns:
     Expresses worries about annuities tying up funds and reducing portfolio liquidity, which is crucial during retirement.
     Mark Telercio: “The other thing that I have a hard time with with an annuity is that it is also tying up money and I feel very concerned about losing the liquidity.” [17:17]
   • Recommendation:
     Encourages Linda to provide more detailed financial information, including pension details and Social Security strategies, before making a definitive recommendation. Emphasizes the importance of understanding the rationale behind the advisor’s suggestion.

Expert Insights and Takeaways

• Diversification Over Concentration: Both Jill and Mark stress the importance of a diversified investment portfolio. Concentrating investments in specific sectors like energy or relying solely on managed funds can expose investors to unnecessary risks.

• Strategic Withdrawal Planning: Properly planning how to withdraw from retirement accounts can mitigate tax burdens and ensure sustained income throughout retirement. Locking funds in cash equivalents can provide a buffer against market volatility.

• Flexibility in Savings Plans: Target date 529 plans have built-in conservatism as enrollment dates approach. However, adjusting asset allocations within these plans can better align them with long-term growth objectives, especially when time allows.

• Annuities vs. Portfolio Income: While annuities offer guaranteed income, they may limit liquidity and flexibility. Evaluating individual financial situations and retirement goals is crucial before integrating fixed target annuities into a portfolio.

Notable Quotes

• Mark Telercio on Gifting Strategies:
  “I would rather have one [529 account], but it’s not. If they’re fine with it, that’s all that matters.” [04:54]

• Mark Telercio on Market Allocation:
  “If you want to do 70% stocks? You can do the Vanguard stock index portfolio, and that'll rock it for you.” [10:15]

• Mark Telercio on Financial Planning:
  “We got to set this up right now so that you can have $100,000 a year come out of that.” [14:04]

• Mark Telercio on Annuities:
  “I have a hard time with an annuity is that it is also tying up money and I feel very concerned about losing the liquidity.” [17:17]

Conclusion

Episode 529 of Jill on Money provides listeners with actionable financial strategies to ensure their assets grow and work effectively towards their long-term goals. By addressing real-life scenarios and offering expert advice, Jill and Mark empower their audience to make informed decisions, whether it's optimizing investment portfolios, managing educational savings, or planning for a secure retirement. The episode underscores the importance of diversification, strategic planning, and personalized financial advice in navigating the complexities of personal finance.

For more insights and personalized advice, subscribe to Jill on Money on your preferred podcast platform or visit jillonmoney.com.