Retirement financial planning: more accessible, but with caution

Financial Planners

I have written and researched finance and money articles for most of my career. We have also covered retirement for the past 15 years. But my wife and I haven’t picked stocks or mutual funds for our retirement accounts or created our own retirement plans since the late 1990s. For that, we rely on our financial planners.

Hiring a planner is one of the smartest financial moves we’ve made. This kind of advice was once part of the wealth management business and, as the name suggests, was primarily available to the wealthy. But over the past two decades, financial planning has become more accessible to the average person and its approach has become more professional and holistic.

The most promising development is the exponential growth of the best kind of advice you can get. This comes from the trustee, the planner. Technology has automated some of the most basic planning functions and helped lower the cost of advice. Thing.

However, you must proceed with caution here.The landscape is littered with people who call themselves financial Advisor and Planner. Unfortunately, the turbulent regulatory environment of the past two decades has resulted in many of the large broker- or agent-selling arm of Wall Street’s largest corporations, including banks, mutual fund companies, and insurance companies, turning to fee-based stock brokerage for financial advice. I have allowed them to continue selling. ,it’s not. There are also many people selling dangerous exotica like cryptocurrencies.

Here are some of the most important challenges financial planners can help solve, and the key benefits of getting them involved.

Manage complexity. You’ve probably noticed that financial matters get more complicated as you get older. By the time retirement is in sight, you’ll probably have a mortgage, a car, credit cards, old student loans, and other debts. If you want to catch up on your retirement savings, you’ll need to answer questions about investment vehicles and contribution rates. You may be balancing your own needs with the needs of adult children who need your help for their education or other financial needs.

Manage transitions to retirement. It’s easy to plan for retirement when you’re young. An important task is to save as much as possible. This is the so-called accumulation phase. When investing in low-cost passive he mutual funds, investment choices are fairly straightforward. But the transition to retirement presents some complications. What are the consequences of working longer or retiring early? When should I apply for Social Security and Medicare? What type of Medicare coverage should I choose? Long-Term Care Insurance how is?

Manage retirement age. The goal in retirement is to ensure adequate income and manage resources safely and efficiently. Some complicated questions may arise. Which savings account to tap first? What is a safe withdrawal rate? How do you plan to minimize your tax burden? If you have a pension, should you receive it as a lump sum or as a monthly annuity? And do you need advice on how to manage the bear market? Should you carry your 401(k) over to your personal retirement account when you retire, or leave it alone? Convert some of your savings into a taxable account?

Protect against the risk of cognitive declineMore than half of the US population over the age of 85 suffers from some degree of cognitive impairment. This situation makes older people vulnerable to financial fraud and abuse.

Combine this vulnerability with several other trends and you have a complete financial risk storm. These include increased reliance on self-managed retirement income through personal savings and 401(k) accounts, increased use of debt by older households, and increased financial problems. Fraud, computer security, hacking.

peace of mind. If you don’t have a formal plan for retirement, you’re flying blind. Planners use software to build models of household budgets. This model can predict the likelihood of success and provide a valuable what-if scenario when considering retirement options. Most advisors use planning software that predicts outcomes depending on when you retire, the age at which you claim Social Security, and the amount accumulated in your retirement account.

These software programs only provide projections and are not crystal balls. But they provide context for decision making. With the press of a key, an advisor can explain the impact of leaving a few years ago. What if you adjusted the equity and bond holdings in your portfolio to avoid the risk of a market downturn? Do you have enough assets to meet your care needs? I would like to make a career change in middle age to increase or increase. How will that affect your plans? What if you become self-employed and need to adjust your finances?

You can find a variety of financial advisors, but there is one important difference to consider when seeking this type of help. That is whether the advisor is always the fiduciary. Some advisors pledge their loyalty to you, the customer, first, while others pledge their loyalty to the company that sells your product to you.

A legal litmus test is a fiduciary duty. Advisors have a duty to put their clients’ best interests ahead of their own. Receive the highest level of professional care. Trust relationships also come with important legal protections. If you decide to sue a fiduciary advisor who you believe has harmed you, that advisor has the burden of proving that what she or he did was in your best interests.

For untrusted advisors, the burden of proof is on you. Wall Street, consumer advocates, and regulators have been arguing over fiduciary standards for financial advisors for more than a decade. Current U.S. Securities and Exchange Commission regulations allow advisors to provide conflicting advice as long as the conflict is disclosed to the client. Disclosures are in the form of long, detailed documents. Worse, although the “best interest” criterion sounds like fiduciary duty, it is not.

For now, that means buyers have to be careful. But let’s take a quick look at this. Given the opportunity to work with an advisor who is fiduciary and legally obligated to put his or her best interests first, why not?

Your best choice is a registered investment adviser who works on commission only. Under this arrangement, advisors are paid only for the time they work for you, not commissions based on what they sell to you. is a trustee affiliated with They will have access to a wide range of financial products from various providers rather than the captive set of services offered by their employer. RIAs are regulated by the SEC and in some cases by state authorities. They have the standard care of a fiduciary.

As with any investment, the fees you pay your advisor will have a big impact on your ultimate success. That’s why it’s important to understand the different ways planners are rewarded and how to keep their fees reasonable. Fee-only planners can be rewarded in a variety of ways: hourly, project-wise, or scaled to the complexity of their financial operations.

In some cases, a percentage of the assets under management is paid. Typically, up to $1 million is managed at 1% per annum (reduced for higher amounts). This fee structure quickly becomes expensive when you consider that you pay annually. Most of the time it’s overkill. Advisors who use it like to argue that it aligns your interests with theirs — “When you succeed, I succeed.” is not. Portfolios grow for a variety of reasons. If you’re into passive index funds, he has only two reasons. contribution and performance of the stock market as a whole. An advisor does no more work managing $500,000 than he manages $100,000.

These fees are often negotiable, and flat rates are becoming more common. You can look at the list of tasks provided by RIA and choose the one you need. Try to negotiate a flat annual fee, not a fee based on assets under management.

Another approach is to hire an independent project advisor to provide a financial plan to execute.

When hiring a financial planner, treat the process as if you were an employer hiring someone to do important work for your company. Start by listing at least three of her candidates to interview thoroughly. Getting recommendations from friends is a good way to start. You can also search her online directory of fiduciary advisors in your area. A recommendation from another trusted professional, such as a lawyer or accountant, is even better. Ask them for the names of advisors they respect and trust.

Ask candidates to provide access to current clients who can provide references and discuss their experiences with advisors — but only in a general way. Most clients are financial individuals I don’t want to talk to you about specific details. Advisors are also bound by privacy considerations. Also, ask prospective advisors to provide a list of professional character references.

Additionally, ask prospective advisors for referrals to professionals who know their work and are in a position to support it. “It could be a CPA, a lawyer, or an elderly care professional,” said a certified financial planner and leading figure in the movement to educate Americans about the importance of trusted fiduciary advice. said Sheryl Garrett, who is an advisor.

Interviews ask about advisor’s experience, size of client base, compensation model, investment philosophy and loyalty. It’s absolutely critical to understand whether the advisor is really working for you or for the financial services company that sells the product.

Also, determine if your advisor is an SEC-registered investment advisor and in which state they are located and request a document called ADV Part II. ADV Part II includes states in which advisors are registered and other important disclosures.

Finally, you need a planner with clean records. Ask candidates if they have ever been publicly reprimanded for illegal or unethical professional conduct. You can check their performance for yourself on websites operated by FINRA, the Financial Industry Regulatory Authority (a self-regulatory body that oversees broker-dealers), and the SEC. Especially at FINRA.

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