Longish: IRA Consolidation/Asset Allocation Questions

"When factoring in non-retirement investmts the allocation of my total present funds is as follows: Bonds - 19%; Equities - 70%; Cash - 11 % (Yes, my funds are heavily weighted towards the regular IRA's due to having started those investments earliest.)

Much of what Ive read about preparing for retirement says that someone like me with only a few years to go to retirement should adjust their asset allocation to lower risk. I've also been told that, since I'll have a good (federal) pension income that shouldn't be going away (like

a private pension might), I can have take more risk in my investments than what's usually recommended. Based on these 2 somewhat conflicting statements, is my mix too conservative? "

I do not think 70% equities, 20% bonds and 10% cash is "too conservative" under too many definitions. Considering how clse you are too retirement, I think more people will tell you to decrease the stock/equity exposure rather than increase it.

a couple of thoughts- is 10% cash more or less than 4 years worth of basic living expenses? I might suggest having enough cash "on hand" in CDs, money markets or savings accounts to allow you to live comfortably for 4 years. This way if the market turns 70% equities into 50% equities, you do not have to draw down investments which are poised for a rebound.

the 60% pension- is it enough to live on?

what are your retirement plans (travel, spoil the granschildren, start a new business...)

His point in that question, though, is that his nominal assets are distributed that way - excluding any imputed value of his pension. If he's got a pension paying him, say, $40k/yr pretty much guaranteed (I'm making up a number here, I have no idea what 60% of his salary is), he may consider that pension to imply the equivalent of, say, another $1million in bonds. Now, supposing that his 70/20/10 adds up to another million, his real, effective allocation is not 70/20/10, but more like

35/60/5 - a fairly conservative picture.

Now, whether his pension ought to be considered the equivalent of bonds, and how much that pension is "worth" in terms of current assets, those are issues to be explored in more detail.

BRH- The thing to remember about rules of thumb is that they're generalities that "on average" make sense, but not much more. It is commonly said that your investment mix should become more conservative as you approach retirement, and it does make sense - at the very least, to the extent you anticipate tapping into those investments, you don't want those dollars invested in pork bellies.

But consider your individual situation. Maybe you have a paid-off home and you'll get more money out of your pension than you need to cover expenses - be a "net saver" during retirement. Or maybe that's the case once you factor in even a small amount of dividend income from your accessible holdings.

If so then you might be retired but justifiably have a relatively aggressive investment allocation, because the dollars are likely to sit there for 15 years (or "forever").

Another exception comes when someone has reached true financial security, where their investments (plus pension, perhaps) are more or less guaranteed to cover the anticipated income needs over retirement. In that case the asset allocation may come down to personal preferences.

100% T-bills, 100% stocks, whatever.

If there's a reason not to consolidate, this wouldn't be it.

From the IRS perspective, you have just one traditional IRA, which might happen to be spread out over 8 accounts. Your "nondeductible contributions," which will be factored into your taxes at distribution time, or in a Roth conversion, aren't specific to any one account. If these contributions were $4k in one account, $2k in another, $1k in another, you have $7k in nondeductible contributions or "IRA basis" in your IRA. That number is sitting on a tax form that you've filed each year you made a nondeductible contribution. But it's irrelevant what specific IRA account the contribution went into. And at distribution time, you don't pay attention to specific account values and IRA basis. If you take out $1k it's treated the same tax-wise regardless of whether you get it from an account that included nondeductible contributions.

One comment on your asset allocation: when dividing your investment allocation across the IRAs, there's an argument for putting your highest expected return investments in the Roth, where the gains are free from tax, instead of the traditional IRA, where they will be taxed.

Also: it sounds like you know this but you can't combine Roth IRA assets with any of your pre-tax IRAs, they're completely different types of accounts.

It's not so bad really, just be sure you have a total of the nondeductible contributions to the IRAs - not per account, but the bottom line total. That's about all you need to keep track of. Eventually (age 70 1/2), you'll need to meet minimum-distribution requirements on the trad-IRAs, but there isn't any record keeping there either - you base them on the total IRA value Dec 31, and the custodian needs to report it to you anyway. And a contributory Roth doesn't really have any recordkeeping associated with it. So recordkeeping isn't going to be all that complicated either way. I think the main advantages in consolidation are simplifying investment management, and avoiding fees for smaller accounts.

-Tad

Thank You. I couldn't have expressed that better myself. Being lucky enough to have a safe, sizable pension puts me in a "not the usual case" category. Without the pension, a more conservative mix would definitely be called for.

To get a more specific analysis, I'd have to divulge my total financial picture here, which I won't do (of course).

Thanks for your perspective on this.

======================================= MODERATOR'S COMMENT: Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

Thanks for the clarification on the record-keeping aspect of this. But I have one last question. If I continue having 8 traditional IRA accounts (with multiple mutual fund providers), when the time comes for minimal distribution they will _each_ do their own calculation, no? After all, they're not aware of the other accounts. I would prefer keep track of fewer than 8 minimal distributions. Or am I missing something in this analysis?

Thanks!

Yes, each would send you a notice and you'd need to total the 8 to determine your minimum required distribution for the year. This isn't too hard really, you just tally up the account values as of Dec 31 of the prior year, and divide that number by an age-based factor that's printed in the IRS publication about this (see Pub 590 at

And this doesn't start until you reach age 70 1/2, before that there aren't any minimum required distributions.

But you won't need to take a distribution from each account. All that's required is you meet the MRD requirement somewhere, through some combination of withdrawals. You could, say, keep a bank CD as one of your IRA accounts, and take your distributions from there each year, while leaving the other 7 accounts alone. The IRS doesn't care, and your mutual fund custodians shouldn't either.

-Tad