We retired at 59/60, we just haven’t had to touch our investments yet.
Totally agree with @rickle that starting early is paramount and zero debt with realistic expectations is a great formula for a happy and secure retirement.
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@Youdon_tsay - See if you can learn more about your mom’s annuity details. I don’t know much about annuities (hubby does most of our “big finance” planning, and he is not a fan). It does seem that some flavors of annuities benefit the salesperson via commissions more than the owner. I think that some (or all?) annuities have withdrawal penalties, at least for the first few years.
https://www.questionsanswered.net/finance/10-facts-about-annuities?ad=dirN&qo=serpIndex&o=740012
Actually there are some with no surrender penalties (completely liquid) but the vast majority do have a surrender schedule. However, if you understand the structure and benefits and it makes sense for you to use to achieve a certain outcome, the surrender schedule shouldn’t be an issue. Don’t ever put in money you think you’ll need if there are penalties to access. Always be more conservative so there’s excess outside of the annuity just in case. After that, the surrender schedule is irrelevant OR you’re in the wrong product. Typically range from 3 - 10 yrs. Some features / benefits can kick in immediately, others take awhile.
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If you spend much time on the Boglehead forum you will see people who feel it’s crazy to wait until age 70; that 8% extra for life can be matched, they feel, by taking it early and investing it yourself. That, of course, does not work if you use it to live on. They feel they can beat the 8% investing in the market for those years.
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Interesting perspective but they also then have to worry about all those taxes they will have to pay on it as well in capital gains etc for when they do need to take it out and what they’re missing is that amount per month for the rest of their life so that is a tall order and a risky proposition in my book. It’s also not a lump sum they are investing so they have to continuouly be investing that money as well as take the hits with it which over the past year we’ve seen plenty.
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Another reason to consider living in a state that does not tax SS. If SS will be a significant part of your retirement income, it will not be available for investing.
Funny, I wasn’t even thinking about the tax on the social securities earning, but you’re right. There would still be federal taxes due on some portion of the social security earnings when they take it, plus the taxes on the earnings (capital gains) on the money invested, assuming there are capital gains. So they would need to have a much higher rate of return than 8% to have an effective ROI of 8%.
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Wow. Hundreds of entries since I was a regular participant in this thread. [No good reason but work and discomfort with the change in format of CC].
@Jolynne_Smyth, you asked about FAs, trusts, lawyers, CPAs. The real trick is to find really good professional service providers. Very few are that good. The best ones work hard to figure out what you want to accomplish and use their experience to help you understand what will want down the road. Then they use their expertise to help you achieve your objectives. Most of the professional service providers do a sort of one size fits all thing or in the case of tax folks and lawyers tell you what you can’t do rather than figuring out a way to help you achieve your objectives. I have to work backwards from them telling me what I can’t do to figure out a way to accomplish what I can do. The good ones figure it out with me. So, I spent a lot of time asking folks I respect who they use and why.
As a consequence, I have two financial advisors. The first is a “wealth manager” at a brokerage firm. Except for getting me into a 412(i) plan that morphed into a 415(i) that enabled me to put quite a bit into tax-deferred plans, their investment advice is terrible (always clever ideas with high fee products) but their service is superb. They handle a bunch of fairly routine stuff for me and my companies. They also do a good job investing short-term money in relatively safe munis with decent rates. I leave enough of my money there so that they have an interest in providing the service. Both of my kids keep the equivalent of their checking accounts there and can get help anytime they want from highly competent folks.
In contrast, my primary relationship is with an independent FA firm, who I discovered reading an article on tax-advantaged ways of paying for college (most of which I chose not to use). Smart, much more holistic. Fees are not directly a function of assets under management – they look across the accounts I have with them and the accounts I have with the first FA. Yesterday, I asked them about whether the company that employs me should set up a Roth 401k along with the conventional 401k. They raised the possibility of in-service rollovers but suggested I talk with my tax guy about Net Unrealized Appreciation. I’d never heard of either. Going to see if I can move over some money if I can before tax rates go up.
Two interesting facts. The head of the firm is female, which I thought was highly desirable as I wanted my wife, who was really uncomfortable with anything financial, to find someone she was comfortable talking with and the the first FA was terrific at talking down to her. But, the female head of the firm hired a young man in his 30s who is fabulous at explaining things to my wife. One smart thing she did was to have this guy work with the kids of her clients, and he was very helpful with my daughter on issues of benefits when she took a job and how to handle a move where she had to find a job at the other end. Smart business strategy as the kids of her clients will probably inherit reasonable amounts of money and may do well on their own and will already have their own FAs.
When the Pandemic hit my main business (which had historically involved LOTS of business travel), the small FA firm on their own did an analysis of what would happen if I no longer received an income from the business. The good news: we would be fine if I stopped today.
I had worked in the family office of a very wealthy family when I was younger. They got help from the very top tax guys at one of the Big 4 accounting firms, and these guys were superb. Proactive, “We could save you $1 MM if you did this rather than that.” Creative problem solvers. So, when I left them and started my own firm in a different city, I asked quite a few people for a tax guy who would be proactive and work creatively to solve problems that would arise. I knew I couldn’t the top tax guys at a Big 4 firm, but several people directed me to the name partner of a small-ish firm that specialized in working with entrepreneurs (especially in tech/biotech). By having them do my companies and my personal taxes (and my kids), they introduced me to the FA with the 412(i) plan mentioned above. I was able to put away $200K+ in tax-deferred savings for a number of years. Then they proposed a structure that, by itself, probably saved me from $10K a year to as much as $40K a year in taxes since 1994. Definitely worth the effort of interviewing lots of folks.
Similarly, I was looking to create a trust for the purposes of estate planning and asset protection. I read a lot and found that most of the advisors in the asset protection area seemed to be peddling things that sounded good but would fall apart in court if stressed. I did find a few lawyers who seemed much skeptical of their brethren but had figured out things that did work. I picked one whose price was surprising reasonable. We jointly figured out a dynasty trust that would accomplish most of my objectives and responded to specifics aspects of my situation. Again, well worth the effort of studying the area and finding the good people. He doesn’t do much of this work anymore but as a favor to me he is setting up a similar trust for my son.
With respect to insurance, ShawWife was always comfortable knowing that there was a fair bit of whole life insurance and annuities in the 412i (note that this was a plan that was created as a result of insurance industry lobbying – in return for using an insurance policy inside a tax-deferred vehicle, we were able to do a lot of tax-deferred savings). The fee-only financial planner was able to convince ShawWife that she didn’t really need insurance anymore. The wealth manager regularly proposed annuities to help with things like annuities, but they were always very complex and laden with fees. I always listen but have never invested. The one insurance I have bulked up on is disability insurance.
@rickle1, with respect to kids, I had each kid sit down with the FA and arrange for X% of their salary to go directly into an investment account as soon as they were earning salaries In addition, they max out 401k plans and Roths (this is probably the last year for ShawD but ShawSon has not been eligible for a while.). I have coached them on the importance of arranging one’s life so that income exceeds expenses.
@Jolynne_Smyth, sorry if I provided TMI but was trying to illustrate how finding the right people can make a real difference.
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@shawbridge - wow, thanks for that detailed explanation! An extremely informative overview!
While our finances are not as large nor complex - the principles seem equally applicable: find a professional whom you trust from direct experience or recommendation and consider the type of contribution they can make as well as their perspective on the whole financial situation. I have been talking to a ‘wealth manager’ - and, like you advised, he has a problem-solving, holistic-type approach. He’s the only one I’ve really talked to, thought, so maybe I should look around a bit.
I’m interested in your discussion of a dynasty trust. We don’t have a ton of money, but I like the concept of accumulating enough to pass something to the generations to follow, rather than structuring to the end of life (and avoid being a burden to your kids). I hadn’t thought much about that (had always advised my parents: spend your $ and travel and enjoy life - don’t worry about us - although they still left my brother and I a paid-for home).
I have to say this board is the best - I’ve learned so much from everyone (and it’s motivating!) 
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Set up several closely held companies with what was the 412(i) - fully insured defined benefit plans. They were able to contribute several hundred k in pretax plans. Of course they’ll have to pay tax on distributions at some point but that’s generally after the plan has been unwound and rolled to an IRA or other device. Firm demographics have to be just right in order for the strategy to work, but when it does, it’s very powerful.
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I agree with Shawbridge, that finding the right people is essential to getting where you want to go. A good tax person will save you soooo much money, esp. if you are self employed or own businesses or odd investments of any kind.
While I think you need to have enough money to get a FA to pay attention, it’s not as much as people realize. And a good FA will take on a younger client who is earning a lot, knowing that they will grow with the FA. I’ve mentioned before that I prefer boutique type FA firms. They need to work harder for your business against the “big boys” And they have better customer service and less of an inclination to sell you thing they make money on. Of course, a fiduciary is the only way to go, IMO. And if you have a FA with has at least 20 years experience and it likely to not retire before you do, that’s a plus as well.
FA’s, CPA’s and attorneys should have the skills you need. If you are a small business owner for example, check out his/her skills in that area. Attorneys are highly specialized one that does estate planning, isn’t likely to advise you on selling your business or writing up contracts. We have used several. Again, it’s an area where have a solid person who isn’t afraid to refer you to his/her professional circle is ideal. We like having our tax, CPA and FA’s in different firms. No reason for them to cover up any mistakes. And they don’t have a singular goal. We’ve often heard great conflicting advice so we could make the best decision for us.
I don’t think many FA’s, CPAs and attorneys realize how important communication is. This is particularly true when speaking to women. As a couple, we don’t have an uneven balance in knowledge across these sectors. But we have had the experience of the tone deaf FA. He was fired within the month. I also think it’s really important for everyone in the family to understand the state of the finances and where accounts are, how things work and how to access things in case of emergency.
If you have a friend who is successful and measured they are likely a good source for finding the right people. And don’t be afraid to move on if it doesn’t feel right.
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Couldn’t agree more with this post. Two critical skillsets an advisor must have to truly help YOUR situation is listening / understanding what you really want to accomplish AND having expertise in those particular areas. Not a knock on CPAs and attorneys at all, as I work with many of them (some good, some bad), but the general public doesn’t realize they have a limited knowledge base (like everyone else) outside their specialty. Law and accounting are massive fields with many niche areas. It’s unlikely your neighbor who happens to be an attorney knows the ins and outs of estate planning. FAs and CPAs fall in the same category, they specialize. The generalist would be well served to align with a specialist to provide the best advice. Your primary care physician wouldn’t be the one to treat you for cancer or heart issues. They may know a thing or two but that’s why you have specialists.
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A good generalist, whether in medicine, law, or personal financial advising, does need to have enough breadth of knowledge to know what is possible (and likely or unlikely) and whether and when a specialist is needed, and which specialist.
True, no argument, but they won’t have the detailed expertise to get to the bottom of issues and implement solutions. Most of my highly qualified estate planning attorney friends spend most of their time (and earn most of their fees) by redoing the poor or outdated legal work previously established. Not talking about just updating wills but real planning.
Agree. I think using a generalist can be a good way to find experts. But it’s not the only way. Meeting with experts and talking to them can be the best fit.
Don’t forget to check databases related to their careers. FA’s for example or at least those holding some credentials can be searched to see if they have had any “issues” You can also check to see if they are active members of any organizations. Membership can mean that they meet additional thresholds for education and ethics. Fees can vary a lot as well. Expect to pay more for those who are truly experts.
Make sure you get a contract. Even CPA’s use them these days to spell out fees and expectations. IMO, having you sign a contract is a sign of good business practices.
I’ll admit that it took us a few years to find “the right person” (which was really a small “fee only” firm, which later merged into larger firm but kept its same local office).
We started many years before retirement. We did several community classes with free advisors but were leery of their incentive to sell commissioned investments (and did not “click” with any of them during free individual consultation sessions(. But it was great for getting us to collect our paperwork and consider our priorities! Then we did a class/consultation with a fee-based FA. We liked him but worried he was too small (himself and a helper), too close to our own age. Also my husband researched more and decided he preferred fee-only FA, no possibility of commission incentives. We have been OK with paying the fee since we’ve had a few years of important decisions (2 retirements… had good setup for peace of mind when markets dip, inherited money etc). I can see how other families would want to avoid fees.
I have posted this link previously… but we have some new folks in the group. (I used to get the two terms mixed up)
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Interesting, @Happytimes2001. Our wealth manager has absolutely superb service. He hires a few bright kids, usually women, who can take care of anything promptly. They call my kids to tell them there isn’t enough money in their account to pay a bill or to remember to make the Roth IRA payment and then transfer it into the account. The fee-only FA has great advice but they are not as strong on the quick service.
I do think a mix of people is needed. They will likely not be in the same firm.
I did forget that the wealth manager has enabled me to make small investments in a couple of private equity funds from one of the top 3 PE firms that only the very wealthy/institutional investors get to invest in. For being an early supporter of the PE firm, his firm get slices in their funds and offers an opportunity to invest to their good clients (of course, we pay an extra fee to them to take part of their slice). But those investments have done very well for us and are not so correlated with the S&P.
I am hoping I can work for a long time, which will depend upon a) the market still wanting the thing that I do; and b) I am healthy enough to do the work. My expectation is that over time I will increase the fraction of my time that is allocated to saving the world (or at least making it a better place). Each time I do the math on the mega-backdoor Roth IRAs, I can’t see a good financial reason to do so. But, if tax rates are going up, maybe now is a good time. I’ve got the professionals working on it.
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I don’t think it’s only a matter of how they get paid so much as who they work for and if they are a fiduciary. I’m personally wary of anyone being compensated by anyone other than me (conflict of interest). And we didn’t have good results from large firms ( we were young and didn’t have a lot of equity then). But I do think you could get good service anywhere depending PARTIALLY on the size your investment and the person. In the thread above, I think you are talking top tier private banking/investment management type stuff and that is very different from someone having 100K( or a typical IRA) in an account. Not many people are going to have access to private equity funds. (And most of the people who have access probably don’t know enough to invest wisely in those funds. You’d need a financial background and $$$$. Not always the combination in the wealthy clients).
There are a lot of good people out there to advise. But, I do think people have to know how their advisees are compensated and if that impacts information flow. Likewise, I’d advise my kids to know what they are investing in. Many people let someone else invest for them and pick all the choices. That can work out very poorly.
We’re beginning to teach the kids to invest. Oldest invested in Moderna last Spring and got bitcoin as a birthday gift. Doing very well on both. I think the bitcoin will crash but it’s a good way to learn about markets. And there is a Bitcoin ATM nearby. LOL. Youngest just got a small account to invest in something. Kid is doing research and has found some interesting things. This kid seems to be more conservative in where the money goes. It’s funny because the younger generation ( and my kids are teens) is going to watch things more closely via phone then we ever did with monthly statements. I still don’t have any personal financial info on my phone.
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As someone on the other side (FA - fiduciary), I just want to say I agree that’s it’s about “the person”. I don’t agree with the whole compensation issue - we’ll agree to disagree. Shouldn’t make any difference if you are paying AUM fees, a contract fee, or the FA is getting paid commissions PROVIDED you are getting what you need (proper solutions and service). To that end, pretty critical to be working with an independent (no financial pressure to sell X over Y) advisor who is properly licensed across many areas so you have access to essentially everything. You don’t want their licensing or a few companies determining what they show you. That said, if a great solution for your situation results in commission vs. a fee, who cares?( That 412 (i) resulted in commissions) Same for how much they make. All you should care about is you’re happy with the results.
We charge planning fees, earn AUM trails and receive commissions. Sometimes all three with a certain client. Other times just one determined by the client.
Do you care what your physician, lawyer, CPA, P&C shop, realtor, plumber, yard guy make? I hope you want them to do fantastically well so they can continue providing the level of service you require. It’s not a commodity (products may be, but not the planning and service).
Rant over…
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It’s not a rant You obviously provide good service to your clients and think it doesn’t matter how you are compensated. As a client, I don’t feel comfortable with someone being aligned with a group of products. And in our case, we don’t buy products at all. We have mostly a stock portfolio ( with mutual funds, bonds and other products thrown in to balance things from time to time). We did have a guy who was excellent but he sold mutual funds and our returns were lower than we now get.
And yes, I do care that my physician isn’t being paid by a pharmaceutical company to advise me on one drug over the other. We go to a local repair shop for our car ( primarily because the prices for the dealer were silly and the work shoddy), the realtor (yes, this is super important, we hired a buyer broker), the yard guy (he’s a local and he owns the business), the plumber (same). Hadn’t really thought about it, until now. But we tend to do business with local people and we like to know how it works. As another example, we have a very large yard filled with trees and landscaping from the last owner, so it’s expensive to upkeep. The landscaper sold my spouse a one sized fits all plan. Guess what? It didn’t work. They ended up creating another plan based on actual things being done. Works great and if something isn’t done we don’t pay.
I think we are a bit unlike some other consumers. I’m not saying anything against financial people paid in the way you are compensated. It’s just not for us. We don’t like conflict of interest ( even perceived) even if the results are good. Based on what my friends tell me, I think most people don’t care at all.
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