Northwestern Mutual Refugee

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Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Northwestern Mutual Refugee

Post by friendofafarmer »

Hey All,

In the process of transferring my holdings with Northwestern Mutual to Vanguard (can't believe I was there for six years), and wanted to ask for some guidance/feedback about my plan.

Current accounts with NWM are a Roth, SEP, and individual brokerage account.

- Roth (~$14k) is about 95% stocks, 5% bonds, all actively-managed funds with about 0.6% ER
- SEP (~$36) is about 92% stocks, 8% bonds, same funds as above
- Brokerage (~$43k) is about 64% stocks, 31% bonds, 5% cash. The funds all are > 1% ER

Other assets:
- $20k accumulated savings from pandemic life
- $100k 403(b) from previous employer (Principal)
- $37k 401k with current employer (Fidelity; contributing ~14k annually plus employer match)
- $25 emergency fund

Once the assets land in Vanguard, here's what I'm planning:
- Sell the Roth and SEP holdings and buy a three-fund portfolio in each: 30% VTAPX (short-term bonds), 35% VTSAX (us stocks), 35% VTIAX (int'l stocks)
- Sell all the brokerage positions and buy 100% VFIAX (s&p 500 index)
- Do a backdoor IRA with my cash savings ($6k), and put the rest into the VFIAX brokerage ($19k)
- Roll over my 403b to my Fidelity. Investment mix is 35% FXAIX (fidelity's s&p 500 index), VTSNX (int'l stocks, a vanguard fund), FXNAX (medium term bonds)

A couple more questions...

I currently do a paycheck withdrawal NWM to the brokerage account ($375 per paycheck). I'd like to continue post-tax contributions to my investments. What's the best low-maintenance strategy for this?

Is there anyway to avoid the tax implications from changing the holdings in my portfolio after the assets land?

I called my NWM guy as a courtesy to let him know I was "graduating" (six years is a long time). He advised that I keep the IRA investments where they are, because I've already "paid in" for the fees, meaning that their returns have been large enough compared to indexes so as to account for the fees. Thoughts on this? Should I keep them in 0.6% and > 1% ER accounts to hold onto the aggressive growth? Or am I only setting myself up for more pain in 30-ish years.

Thanks!
Jack FFR1846
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Location: 26 miles, 385 yards west of Copley Square

Re: Northwestern Mutual Refugee

Post by Jack FFR1846 »

The fees on your front loaded garbage funds are still high compared with anything within a reasonable 3 fund portfolio. The fact that you already dumped a wheelbarrow full of cash into NWM's coffers doesn't justify continuing to dump un-necessary fees there. Get out. All the way out.
Bogle: Smart Beta is stupid
Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

Get out. All the way out.
Love a firm response. This is the kind of strong guidance I'm looking for!
Buy_N_Hold
Posts: 140
Joined: Wed Aug 12, 2020 10:58 am

Re: Northwestern Mutual Refugee

Post by Buy_N_Hold »

I concur. Just dump them completely and ignore the sunk costs. No need to keep bleeding out fees year by year if you believe in Vanguard style buy and hold. Indexing will be far superior in the long-run than the vast majority of active strategies, and at rock bottom cost. Cheers!
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

Consider it done.

Any thoughts on a recurring paycheck withdrawal strategy?
Grogs
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Joined: Tue Mar 24, 2015 4:55 pm

Re: Northwestern Mutual Refugee

Post by Grogs »

friendofafarmer wrote: Mon Apr 05, 2021 12:28 pm Consider it done.

Any thoughts on a recurring paycheck withdrawal strategy?
Once you have an account set up with Vanguard, link it to your checking where the paycheck goes and have it automatically buy VTSAX on a set schedule. I set mine up monthly, but you may be able to do a different frequency like every two weeks.
Firemenot
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Joined: Wed Apr 01, 2020 8:48 pm

Re: Northwestern Mutual Refugee

Post by Firemenot »

I concur with others that you should get out completely. Don’t leave any funds with these “vampire” firms that self-enrich through outrageous up-front and ongoing fees.
slopetider
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Joined: Fri Aug 16, 2019 6:28 pm

Re: Northwestern Mutual Refugee

Post by slopetider »

Congratulations. I recently did the same thing about two years ago. Don't listen to the rep telling you to keep an account with them. It is a sales pitch, not financial advice.

Your Roth and SEP will be fine to liquidate (within the account, not withdraw) and re-allocate in low-cost Vanguard funds. You may have to pay a small transaction fee for trading non-Vanguard mutual funds, but it will more than pay for itself in the long run.

In your taxable account, you will incur taxable events when you sell the funds, but again, you will win out in the long run with lower ERs and not paying AUM fees. The only consideration you may want to make is to wait until all of your holdings have incurred long-term gains to sell them. To do this, turn off dividend reinvestments and sell every tax lot that you purchased over a year ago, and sell your holdings once they've reached a year. Or, if you'd rather keep it simple, just sell everything at once and take the tax hit. Either way, you will come out well ahead long term. Just be sure to set aside the appropriate % of the gains for taxes.

As for automated contributions, Vanguard makes it very easy to set up recurring contributions. It will work exactly the same as it does at Northwestern except you won't be paying large fees and commissions with each purchase :happy

Congratulations on your decision and best of luck in the future!
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Stinky
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Location: Sweet Home Alabama

Re: Northwestern Mutual Refugee

Post by Stinky »

Congratulations on making your exit from NWM funds and asset management. You’re doing exactly the right thing, and I concur with the views of others.

I hope that you don’t have any life insurance with NWML. If you have term life or (even worse) whole life, please post back with details. There’s a high likelihood that insurance you have though NWML could be replaced at a lower cost.

You’re wise to make a complete break with NWML.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Buy_N_Hold
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Joined: Wed Aug 12, 2020 10:58 am

Re: Northwestern Mutual Refugee

Post by Buy_N_Hold »

slopetider wrote: Mon Apr 05, 2021 1:50 pm Congratulations. I recently did the same thing about two years ago. Don't listen to the rep telling you to keep an account with them. It is a sales pitch, not financial advice.

Your Roth and SEP will be fine to liquidate (within the account, not withdraw) and re-allocate in low-cost Vanguard funds. You may have to pay a small transaction fee for trading non-Vanguard mutual funds, but it will more than pay for itself in the long run.

In your taxable account, you will incur taxable events when you sell the funds, but again, you will win out in the long run with lower ERs and not paying AUM fees. The only consideration you may want to make is to wait until all of your holdings have incurred long-term gains to sell them. To do this, turn off dividend reinvestments and sell every tax lot that you purchased over a year ago, and sell your holdings once they've reached a year. Or, if you'd rather keep it simple, just sell everything at once and take the tax hit. Either way, you will come out well ahead long term. Just be sure to set aside the appropriate % of the gains for taxes.

As for automated contributions, Vanguard makes it very easy to set up recurring contributions. It will work exactly the same as it does at Northwestern except you won't be paying large fees and commissions with each purchase :happy

Congratulations on your decision and best of luck in the future!
This is a wonderful summary. Best of luck and congrats on taking control of your financial future in this way. No one will care more about your money than you will. Best Regards!
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

I hope that you don’t have any life insurance with NWML. If you have term life or (even worse) whole life, please post back with details. There’s a high likelihood that insurance you have though NWML could be replaced at a lower cost.
I endured the pitch two or three times, but thankfully listened to my gut and passed!
Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

slopetider wrote: Mon Apr 05, 2021 1:50 pm The only consideration you may want to make is to wait until all of your holdings have incurred long-term gains to sell them. To do this, turn off dividend reinvestments and sell every tax lot that you purchased over a year ago, and sell your holdings once they've reached a year.
I wouldn't mind waiting to sell, but what's a tax lot?
Topic Author
friendofafarmer
Posts: 9
Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

In order to take advantage of backdoor Roths, I'm planning to move my SEP into a Fidelity solo 401k and then rollover from Fidelity to Vanguard. It doesn't look like Vanguard allows SEP -> solo 401k rollovers. Do I have that right?
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Duckie
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Re: Northwestern Mutual Refugee

Post by Duckie »

friendofafarmer wrote:Once the assets land in Vanguard, here's what I'm planning:
- Sell the Roth and SEP holdings and buy a three-fund portfolio in each: 30% VTAPX (short-term bonds), 35% VTSAX (us stocks), 35% VTIAX (int'l stocks)
- Sell all the brokerage positions and buy 100% VFIAX (s&p 500 index)
- Do a backdoor IRA with my cash savings ($6k), and put the rest into the VFIAX brokerage ($19k)
- Roll over my 403b to my Fidelity. Investment mix is 35% FXAIX (fidelity's s&p 500 index), VTSNX (int'l stocks, a vanguard fund), FXNAX (medium term bonds)
Yes, roll the old 403b into your current 401k. You could also roll the SEP IRA there. Put all your bonds in pre-tax accounts (pre-tax 401k) and just stocks in taxable and the Roth IRA.
I wouldn't mind waiting to sell, but what's a tax lot?
Every time you purchase shares in a taxable account you have a "tax lot". Those shares have a specific purchase price and time-frame. If you purchased 200 shares of XYZ for $20 each on 5/20/2020 those 200 shares will become long-term on 5/21/2021. If on 5/22/2021 the cost of XYZ is $22 you know you could sell those 200 shares (ignoring any other XYZ shares you own) for a long-term gain of $400. Keeping track of the costs of the various tax lots and their long-term dates helps you manage your taxes.
In order to take advantage of backdoor Roths, I'm planning to move my SEP into a Fidelity solo 401k and then rollover from Fidelity to Vanguard. It doesn't look like Vanguard allows SEP -> solo 401k rollovers. Do I have that right?
That's right. Vanguard's solo 401k does not allow incoming rollovers but Fidelity's does. Right now E*Trade is the most flexible prototype solo 401k provider, more so than Fidelity or Vanguard.

Do you still have self-employment income?
Rob_Burke
Posts: 19
Joined: Wed Mar 10, 2021 8:44 am
Location: Detroit

Re: Northwestern Mutual Refugee

Post by Rob_Burke »

Congrats!

I did the same thing over the last 2 months. Removed by wife's IRA and my rollover IRA, both with front loads and yearly fees (1.65% AUM fee) much higher than Vanguards indexed funds. I placed them both into Lifestrategy Growth funds. Don't fall for the sunk cost fallacy.

Cancelled my NWM whole life policy, took balance to pay off my mortgage (mental thing).
Moved my 529 account from an advisor to the Michigan Education Savings Program, now with very low fees.
Monthly cash flow into taxable investments will expand greatly and more so in 2 years when I'm done paying for my 3rd in college.
Changed my workplace 403b into Vanguard Target Life 2040

I couldn't be happier.
Last edited by Rob_Burke on Mon Apr 05, 2021 4:48 pm, edited 1 time in total.
Topic Author
friendofafarmer
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Joined: Sat Sep 19, 2020 12:15 pm

Re: Northwestern Mutual Refugee

Post by friendofafarmer »

Duckie wrote: Mon Apr 05, 2021 4:14 pm Yes, roll the old 403b into your current 401k. You could also roll the SEP IRA there. Put all your bonds in pre-tax accounts (pre-tax 401k) and just stocks in taxable and the Roth IRA.
What's the advantage of that?
Duckie wrote: Mon Apr 05, 2021 4:14 pm Every time you purchase shares in a taxable account you have a "tax lot". Those shares have a specific purchase price and time-frame. If you purchased 200 shares of XYZ for $20 each on 5/20/2020 those 200 shares will become long-term on 5/21/2021. If on 5/22/2021 the cost of XYZ is $22 you know you could sell those 200 shares (ignoring any other XYZ shares you own) for a long-term gain of $400. Keeping track of the costs of the various tax lots and their long-term dates helps you manage your taxes.
How is this advantageous? Is the tax different after the one-year mark?
Duckie wrote: Mon Apr 05, 2021 4:14 pm Do you still have self-employment income?
Not at present, but I plan to return to freelancing in the future. I took a pause to focus on a new baby, new job, and (incidentally) life during a pandemic.
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Wiggums
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Re: Northwestern Mutual Refugee

Post by Wiggums »

Grogs wrote: Mon Apr 05, 2021 12:42 pm
friendofafarmer wrote: Mon Apr 05, 2021 12:28 pm Consider it done.

Any thoughts on a recurring paycheck withdrawal strategy?
Once you have an account set up with Vanguard, link it to your checking where the paycheck goes and have it automatically buy VTSAX on a set schedule. I set mine up monthly, but you may be able to do a different frequency like every two weeks.
Scheduling a transfer of money (on VG side) from checking with a fund as the target works perfectly.

https://investor.vanguard.com/contact-u ... k-vanguard
"I started with nothing and I still have most of it left."
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Duckie
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Re: Northwestern Mutual Refugee

Post by Duckie »

friendofafarmer wrote: Mon Apr 05, 2021 4:31 pm
Duckie wrote: Mon Apr 05, 2021 4:14 pm Put all your bonds in pre-tax accounts (pre-tax 401k) and just stocks in taxable and the Roth IRA.
What's the advantage of that?
Bonds kick out a lot of ordinary income and are best in tax-sheltered accounts rather than in taxable. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free.
Keeping track of the costs of the various tax lots and their long-term dates helps you manage your taxes.
How is this advantageous? Is the tax different after the one-year mark?
Yes. Short-term capital gains (assets sold after holding less than a year) are taxed at your marginal tax bracket from 10% to 37% just like your ordinary income. Long-term capital gains (assets sold after holding at least a year) on stocks are taxed from 0% to 20%.
youraveragejoe
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Re: Northwestern Mutual Refugee

Post by youraveragejoe »

friendofafarmer wrote: Mon Apr 05, 2021 11:40 am
I called my NWM guy as a courtesy to let him know I was "graduating" (six years is a long time). He advised that I keep the IRA investments where they are, because I've already "paid in" for the fees, meaning that their returns have been large enough compared to indexes so as to account for the fees. Thoughts on this? Should I keep them in 0.6% and > 1% ER accounts to hold onto the aggressive growth? Or am I only setting myself up for more pain in 30-ish years.

Thanks!
Take a look at this link on Vanguard (albeit it focuses on expense ratio). Your expense ratios are even higher than in the Vanguard example.

Your NWM contact is not in your best interest.

https://investor.vanguard.com/mutual-funds/low-cost
Grogs
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Re: Northwestern Mutual Refugee

Post by Grogs »

Wiggums wrote: Mon Apr 05, 2021 4:34 pm
Grogs wrote: Mon Apr 05, 2021 12:42 pm
friendofafarmer wrote: Mon Apr 05, 2021 12:28 pm Consider it done.

Any thoughts on a recurring paycheck withdrawal strategy?
Once you have an account set up with Vanguard, link it to your checking where the paycheck goes and have it automatically buy VTSAX on a set schedule. I set mine up monthly, but you may be able to do a different frequency like every two weeks.
Scheduling a transfer of money (on VG side) from checking with a fund as the target works perfectly.

https://investor.vanguard.com/contact-u ... k-vanguard
Sorry, wasn't clear. That's what I meant. Set it up in VG to do an automatic purchase of the fund you want and pull the funds from checking.
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