Annuities get a bad rap because of the commissions involved. I don’t think we have any in our portfolio, but in retirement we do pay a lot for a fee-only advisor. (Pros/cons to this approach, but it’s what my husband and I decided is best for a portion of our money). If some folks are using a fiduciary planner (obligated to give advise in client’s favor), it seems like an OK way to buy annuities from them and tap advise on entire portfolio. Planners do have to make their money somehow.
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New topic (hope the gift link works) -
This kind of trend concerns me for Social Security (though more for our kids generation than ours).
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Interestingly my husband and I thought that SS might not be as good by the time retired, and we saved heavily in 401k plan. Turns out SS will be decent, but the presumed pension is far reduce. Phew for the 401K savings, sure hope kids are doing same (we’ll similar… Roth probably better choice now).
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You can ladder annuities similar to bonds. You can also mix in SPIAs (immediate annuity) and have them pay for specific terms (5 yr, 10 yr, 20 yr, etc.) As an example, you purchase multiple annuities at the same time. Say a SPIA for 10 yr certain (not life because you want the higher payout) and a 10yr deferred annuity. SPIA pays you income today for 10 yrs, deferred picks up payments in yr 11. There are also MYGAs (multi year guaranteed annuities) that eliminate interest sensitivity - similar holding bonds to maturity or YTW. They are paying attractive rates today. MYGAs look more like bonds as you get a level interest rate AND maintain principal whereas SPIAs are returning you your principal with interest guaranteed for a period of time. Didn’t used to like SPIAs but see them as a useful tool for solving specific income needs or “legs” of a plan. Use them to construct income buckets.
It’s easy to say “I need $x for the nest 30 yrs” but $x can be broken down into buckets (5 yr bucket, 10 yr bucket, etc.) to maximize efficiencies and/or enhance returns.
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I am a fiduciary. It’s interesting as I’ve been doing this for 35 yrs. The fiduciary aspect is that of licensing. Certain licenses require you to be a fiduciary. I have found over the yrs, just like any other business, the license doesn’t make a lousy financial advisor better, and not having the license doesn’t make a broker bad. I’ve been both a broker and fiduciary and have always operated with the values of putting my client first. That’s just good business (and of course the right thing to do). Most long termers treat their clients really well. Otherwise, they wouldn’t be able to stay in the business as this is about providing advice and client service.
The ones that you should avoid, IMHO, are the ones who focus on proprietary products. Not because they’re bad people, but because they’re quite limited in being able to provide a wide range of solutions.
Personally, I don’t think it matters how an advisor is paid (planning fees, asset based fees, commissions, combo of all). Full disclosure I go the combo route. We charge fees for designing plans. We get a percentage of the assets we manage. We get paid commissions on products that pay commissions (life insurance, LTC and certain annuities (although we take annuity comp in recurring revenue so it’s just like the asset based comp). Never really understood those that claim they don’t take any commissions. That must mean they don’t offer a full range of solutions including very important asset protection that can be best provided by using insurance. Insurance pays commissions.
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As always @rickle1 appreciate it when you chime in.
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“A fiduciary is legally bound to put their client’s best interests ahead of their own.” - That’s a key factor for folks picking an advisor, especially if no access to personal references.
Fiduciary Definition: Examples and Why They Are Important.
@rickle1 - YOU know that your advise is always sound, but for some investors (especially my husband, who actually is the one who found our on fee-only advisor after we vetoed a few instructors from retirement planning classes), fudiciary feels less risky. Your points about fewer product choices are valid. We had also considered one fee-based advisor… just had concerns that he was almost as old as me and worked without partners.
I would have been fine with any arrangement IF it were based on a good recommendation from trusted local friends.
That’s the key. Good recommendations for YOUR situation. I’m agnostic to what comprises a good recommendation. I don’t know that I have any clients with the same implemented plan. What’s the same is they have a plan implemented that meets their needs. Not only are their issues different (or subsets of issues), but so is the manner / frequency they desire updates.
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For me the recommendation idea was not for how a planner handled specific situation (we don’t discuss finances with friends, though most friends were coworkers in similar situations). I assume competent financial planners can cover a lot of areas. Would be interested in general attributes: trustworthy, knowledgeable, thorough, accessible. A bit like I’d rather install a furnace based on personal recommendation rather than a trip through the yellow pages.
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THIS POST IS GEARED TOWARD THE NEWER FOLKS JOINING THIS DISCUSSION.
For those who are 5 or 10 years out for retirement, probably no rush to decide what kind of planner (or self-planning) you’ll do in retirement. But I highly recommend attending a 2 or 3 night retirement planning class, use it as an excuse to pull all your paperwork together and get setup on ssa.gov. It’s a good way to start a discussion of goals and priorities.
Around here classes are often offered at local community college campuses, about $60/couple including 1 hour free private consultation… it’s a way for planners to drum up new clients. Advertising by snailmail post card. We actually did this 3 or 4 times in the decade before retirement, different instructors / students so not a tedious as it sounds (though for most couples one is probably plenty). My husband has an MBA and understands some of the investment stuff better than I do, but really the classes are geared to novices. They handed out helpful booklets, including worksheets to collect info.
While you are at it, do check that your accounts have beneficiaries defined as desired.
The planners will need to know SS estimates, pension estimates and average monthly post-tax income you need. So consider setting up and easy way to log your monthly spending. I’m not a fan of detailed roll-ups by category because it’s too easy to miss things. My preferred method was monthly recording of “outflow” (credit cards + autopays + checks + cash; we noted things like college payments but omitted from the monthly totals). Since we purchase cars in cash, we had to think about how we’d fund for that too. If your mortgage will be paid off before retirement, take that into account too.
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I had such a BAD experience with an advisor that I am hesitant to ever use an advisor again. The good that came out of it was that it caused me to read and read and read and learn everything I could on my own. Knowledge is power. I manage all of my own accounts, but if I ever decide to go with an advisor again I will want to fully understand what is happening. I can’t just turn over all of my money to someone and hope they have my best interest in the planning. (which the first one I had did not have my best interest)
It’s scary to trust someone with your money. It took us a long time to do it, and we only did it after a lot of discussion with H’s coworkers who used him, in person meetings and a couple years of limited advising from him (quarterly reviews of our 401k accounts). For those with the ability to go it alone, there are good resources for that … we just aren’t the go it alone type people.
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I agree with @Colorado_mom . Attend some retirement workshops at least. My professional organization had retirement planning workshops and I went to at least four in the years prior to my retirement. Every time I went, I heard information that I guess I missed the time(s) before. Plus…lots of opportunity to formulate questions.
Re: a financial planner…we found ours through word of mouth. Excellent recommendations from both working colleagues and friends who use the same group. We pay a monthly fee, but our CFP is really fabulous and has helped us with many many things (including completing that gift form when we just couldn’t do it…because of many multiple gifts and splitting it…even the CFP said he had to think about it). This person is available to us just about any time…and quickly responds to our queries.
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I have gone to work seminars that were very helpful, and also done a couple of the free dinner things. Their main purpose is drumming up business, but I always learn something. (I’m no expert but I do have an MBA/understand more than some people). I haven’t done the workbook class thing, but it is a good idea.
We had our ducks more in a row at each subsequent retirment planning class, knew more what interests us.
Also various inputs. The first instructor was big on LTC insurance (though he did not sell it himself), and that caused us to investigate a group LTC plan available to us.
Over time my husband’s refined his planning spreadsheet, with various charts and projection. (I nicknamed it, “the how many ways can you show that ‘we are not able to retire’? spreadsheet”.) One of the first changes, suggested by me I think before we even started classes, was that it’s important to account for taxability - for example, $100 in a traditional 401k is worth less than $100 in the bank.
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That tax when money is coming out is SO important to remember.
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Originally we only cared when totally the size of our savings (ie counted a subset of traditional 401K, I think 70%). Over time we realized there would be issues on retirement tax bracket and possibly IIRMA (“medicare tax”)… started hatching a Roth conversion strategy keeping that in mind.
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We found our FA when she came to our son’s school to talk about saving for college. He was in first grade at the time. We were the only ones who showed up, so we got an hour and a half of one-on-one with her and had a very good feeling about her advice and approach. We began by turning over the college savings we had amassed since he was born into a 529. Eventually, we gave her our entire portfolio. That was almost twenty years ago, and she has helped us steer our financial ship soundly to its goal. I don’t know what we’ll do if she ever retires.
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Sometimes retirement gets delayed due to caring for one’s parents, or circumstances with children and other family members. Sometimes one can enjoy life better by navigating it all to the best of their ability and have retirement delay being minimal. My brother’s older spouse encouraged him retire a year before he wanted to (and he left a sizable amount with walking away a year early due to business ownership/profits) - but he had more than enough money, and it was important for him to stop work for her as well as probably his health (he then stopped smoking and lost 40 lbs which was needed to be lost - so he got active/healthier with the life change and downsizing of his stressful job).
Had a very long talk with a good friend yesterday (have known them well for 15 years - they first lived next door to us before they built a house down our same street) whose family life has been taking almost a constant emotional toll on her - all three children have been so misdirected for so long. She seems to be fighting fires all the time and is a constant ATM machine. Also has a dependent sister (her two dependent brothers and dependent mother all died within a few years - my friend had stepped into her father’s role/he was a successful businessman and left substantial assets, whittled down quite a bit after his death); her sister is a few years younger than her poses the question “when can we retire” - sister is an employee in my friends’ business (fortunately her two kids are adulting well). My friend is 55 and her DH is 61. Their adult children are 24, 26, and 31. Previous times we have had talks over the past couple of years, it was always how they were planning to have enough to retire ‘soon’. Now it is “we will never be able to retire”. The money outgoing to sister/kids is like a fire hose. Her DH is also stressed about it all too, but no easy solutions. To me, it is like they are on the edge of quicksand and don’t have the energy to muck out of it.
Sometimes life can be very hard when the offspring take a long time to transition into adulthood where they can be ‘OK’. None of these neighbor/friends’ kids has substance abuse issues nor legal issues, but have not really created successful paths. At some point it will be ‘enough is enough’ - but the parents have to navigate how to conclude the continual cash flow to them all. While my friend and I were talking, she received a call from the parent of another floundering offspring, who at 26 (friends with her 26 YO offspring) had tried to commit suicide the prior night. These parents certainly are all suffering in various ways.
We have been fortunate our DDs have ‘hit the ground running’ with jobs/careers right out of college. SIL and DD2’s BF both have needed time to get into their chosen career fields for a variety of obstacles (and SIL had to stumble through to get to his goals). SIL seems to be finally there (age 33, married to DD at age 27) - all due to DD1 having paved a successful career, been patient as the primary breadwinner while he fumbled around, while also managing to have 4 children (last one born a few weeks ago). DD1 is continuing her successful career after maternity leave with job transfer in the works to new city/state, relocating with SIL’s job. DD1 also is receiving a 25% pay increase at new job location (COL in that city is not much more than current city, but her department will be bigger - and she also has to be working on line with a Master’s degree).
DD2’s BF (age 26) also is earning more than starter pay in his chosen career field - and he is ‘on his way’ - (Covid shut down his career field over two seasons/years, sports management) and now will have the job experiences to eventually nab an opening within his career field where DD2 lives - even if it may take another year or two (they have been BF/GF for 4 years, often not living in the same city but started off in the same city - he was finishing college and DD2 was in her engineering job). DD2 after almost 3 years in that city, targeted and won a job in the city they planned (which has the work opportunities for BF, while also being in her desired engineering work, and a city they both are very happy in). BF is living with us now (and will be for a while) as his career field had an opening here - so for us it is great that he can save money living with us (to pay on student loans, credit card debt, and buy a reliable vehicle) - BF is easy/no trouble living here. We actually are getting to know him better (w/o DD2 right here, all our interactions with BF now are pure getting to know him/his interests/what he thinks), and getting good feedback that he is as committed to DD2 and DD2 is to him - which is grand. He is a great guy, smart, hard working. BF comes and goes, very relaxed situation here. We met most of his family with our road trip Christmas/New Year’s - his family lives just 1 1/2 hours drive from our SIL’s parents (where DD1/SIL/gkids were). DD2 had said to us “it is finally time for you to meet BF’s family” - so we were at their family dinner/celebration afternoon into evening. We are very comfortable with his family.
Who is to say if DDs did not move so well into their careers would we have changed our retirement plans. Our retirement funds were in such good shape that DH retired 11 months earlier than our plan - he had a jerk of a boss at that point in time, and the resulting job stress had him needing to step away for his own emotional well being. It was a relief for me to finish out my job (at age 65) and then successfully transitioning of cash flow from annuities, having SS set up (first mine right at 65, and then getting DH’s - went a bit to get closer to his full SS). We are not spenders - we watch what we spend but also will spend w/o any heartburn on bigger/more important things. DH is a home body and has good hobbies/interests/activities; we work on exercising regularly, and also work on not overeating/trying to both lose weight but in a healthy way. I have regular activities, and focus on family – and also will have some friend connections and travel when the time is right or for special things. For example we had a long road trip May 2022 with 3 weddings on 3 consecutive weekends in 3 states (WI, OH, MA) - we live in N AL. We will figure out the change in flying to DD1/family and with probably bi-annual trips, some w/o DH or DH not staying as long as me.
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Do you happen to know if this can be done with RMDs from inherited IRAs (prior to age 65)? Or is it only for ones own accounts?