Cheap, Boring Advice for Retirement Savers: Minimize Taxes, Rebalance Regularly

Raised in Evansville, Ind., Elser has been interested in money since she was a child. She was an economics major at Indiana University, started as a corporate analyst for a bank, and then became a stockbroker. She became a financial advisor 21 years ago after she found that she was more interested in giving personal-finance advice than placing clients in hot stocks.

Elser, 58 years old, focuses on helping clients trim their tax bills. She believes taxes will rise in the future because of the growing federal debt, and urges clients in lower brackets to contribute to Roth 401(k)s, if offered by their employer, while they’re working and to do Roth conversions after they retire. 

We recently spoke with Elser about taxes, Roth IRA conversions, and more. Our conversation has been edited.

Barron’s: What’s wrong with having all your money in a tax-deferred account?

Susan Elser: You just have to realize that with money in a pretax account you’re at the mercy of whatever ordinary tax rates are in the future. We frequently have attorneys and doctors come to us with 100% of their retirement savings, say $5 million, in a pretax retirement account. And they have absolutely built no diversification to hedge against higher tax rates in the future, to be able to pull from other buckets that don’t push them up to higher marginal tax brackets. 

Are big tax-deferred accounts always a problem?

No. A lot of our clients with very large pretax accounts have significant other assets. That pretax retirement account becomes their charitable fund. So at 70½ , you just start giving $100,000 a year to your favorite charities.

You’re talking about qualified charitable distributions, right?

Yeah. Having a big pretax account is not in itself negative if you’re charitably inclined and if you have other money to live off. 

With a qualified charitable distribution, you’re allowed to issue a check directly from your IRA to a qualified charity or church. Once you turn 72, it counts toward your required minimum distributions for your pretax accounts. 

What can people do to avoid high taxes in retirement while they’re still working? 

If you’re in one of the three or four lowest tax brackets, up to the 22% and 24% brackets, I would absolutely be contributing into a Roth 401(k) instead of a traditional tax-deferred 401(k). We know tax rates are going up in 2026 when the 2017 tax cuts expire, and we have a $30 trillion federal debt. 

How about Roth conversions? When do they make sense?

There are two times in your life when they’re most beneficial. Early in your 20s and 30s when you may be in lower tax brackets.

And then in retirement. Say you retire at age 60, and you’ve got 10 years before you start Social Security and 12 years before you start required minimum distributions, where you’re going to be in a low tax bracket, and you can do small Roth conversions every year. 

After you’ve set up multiple tax buckets, how do you determine which investments go where?

I want my Roth to be almost all stocks because that’s my tax-free bucket and I want the most growth there. Whatever my bond allocation is I want that in my traditional IRA. I want my slower-growing assets in my high-tax bucket.

You say investing shouldn’t be entertaining. Why? 

The two negative emotions that are fed by watching a 24-hour news cycle are excitement and anxiety. We try to remove both of those from the conversation when we talk to our clients about investments.

Do you advise people not to watch the news?

I personally have CNBC on all day long in my office because there’s a lot of interesting information you can gain, but as soon as it turns to stock picking, market timing, I think both of those are fools’ errands.

You don’t like exotic investments like hedge funds?

Clients think hedge funds are something special for the rich. They are just a lot of ill liquidity, higher fees, opacity and tax inefficiency. If Warren Buffett says don’t invest in them, why would you? 

Why did you study economics in college?

I started out as a journalism major and started taking economics classes and it just seemed very interesting, very intuitive. I read “A Random Walk Down Wall Street” by Burton Malkiel, probably the most memorable book on investments I’ve ever read.

That book argues against trying to beat the market. 

Yeah, the past pattern of any individual stock is no indication of its future pattern. If you think back to the beginning of 2021, and if you could only buy one stock out of Clorox, Peloton, Zoom, or

Exxon Mobil
,
which would it be? Nobody would have said Exxon Mobil a year ago when your car was sitting in the garage and you weren’t driving. Yet Exxon Mobil beat the pants off of them.

You used to be a stockbroker. Why did you switch to financial planning?

It was very transactional. People used to call me and say, ‘Should I buy this fund?’ And I always wanted to say, ‘Well, what else do you have? And what are your goals? Is it for near term, short term? Is it for a house purchase, retirement?’ It was such a bigger question to me.

You charge less than many advisors. Why?

We appeal to what I call the multimillionaire next door who is frugal, appreciates lower fees, needs a high level of service, and so we cut out every ounce of fat that so many of my competitors really play up: the steak dinners, the golf course memberships, the leased Mercedes, the research staff in the face of the statistic that 80% of active management fails to beat an index fund. 

Spell out your fees.

We write financial plans for a fixed fee without any requirement that you use our investment management services, and that will typically range from $3,500 to $8,000 depending on the complexity. 

And for those who do want asset management, your fees start at 0.65% instead of the usual 1%?

Correct, on the first $2 million. It’s 0.35% for anything over $5 million. 

Do you think fees are coming down for everybody eventually?

I don’t know the answer to that. It surprises me. I’m a pretty frugal person. I don’t think that I’d like to pay 1%. 

You’re not a market timer, but you believe in opportunistic buying and selling. 

Disciplined rebalancing says that whatever my target is—say it’s 70% stocks, and 30% bonds—for the last two years as the market continued to climb, I would just keep trimming a little bit of profit to avoid exceeding that 70% in stocks. 

Rebalancing is one of the few documented ways to goose your returns a little bit. That’s probably the No. 1 thing that individuals do not do in managing their own portfolios. They are reluctant to buy stocks when prices go down, and more eager to buy stocks when they rise.

You hear people say they’re waiting for the market to get better before they get back in.

The worst thing you can do. We had several clients in their 401(k)s, which I don’t control, sell all their stocks when Donald Trump won the presidency and then a different group of people sell all their stock when Joe Biden won. And neither one of those groups benefited.

How are you structuring portfolios with bonds yielding so little?

I really believe your bond allocation is not a function of what bond interest rates are. It’s a matter of how much portfolio ballast and stability you want. And we have clients with 55% of their money in bonds. And we have clients with 25% of their money in bonds. 

What do you think a good balance between stocks and bonds is for a retiree?

It’s a very specific risk tolerance for each individual. We have a couple of clients who have no stocks because they would not be able to tolerate the downturn. 

What are they in?

Oh, just a variety of CDs and bonds, making very little money, and not keeping pace with inflation. But importantly it matches their risk tolerance.

One of retirees’ biggest fears is that they’ll end up in long-term care. How do you deal with that?

We incorporate long-term-care planning into every financial plan we write and discuss it with every client. Probably 25% of our clients have long-term-care insurance, and the other 75% have decided to self-insure. The factors include do you have a surplus in retirement savings? Are you likely to inherit money? Are you desiring to leave money to your children? How much home equity do you have in a primary and perhaps a vacation home?

We don’t sell insurance. But I hope every agent out there that sells long-term-care insurance has the same discussions with clients. 

Thank you, Susan.

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