@jazzymomof7, we work with two financial advisors. One I trust for advice. I’m going to discuss some of the things they have done to give you a sense of breadth of what financial advisors can do.
They are very holistic, starting with what you want to accomplish in life and what you want your money to do. When we first did a financial plan with them, we budgeted for college, maybe grad school and weddings for both kids. We talked about a 2nd home and about potential inheritance (none of which we have received so it was good the plan assumed nothing from inheritance). Then they did a model going out year by year to ShawWife at age 100 and a Monte Carlo analysis. They look at all of our insurance coverage. When we rented a houseboat in Sausalito for three winters, they encouraged us to look in other warmer, cheaper parts of California. When we were thinking of buying a new house, we went over with them whether we could afford it without hurting our retirement plan. When we thought we were considering buying a house in Florida (on Sanibel Island, thank good we didn’t buy), they analyzed the financial implications under three assumptions 1) a purchase with appreciation; 2) a purchase where we switched our tax domicile to Florida; and 3) either 1 or 2 with a huge hurricane/flood that makes the house worth zero. They looked with me at whether there were ways to reduce the cost of college by thinking about hiring my kids in my company and setting up a tuition reimbursement plan, but I think we both concluded it was not worth the effort. Similarly, when I wanted to make a small investment in my son’s startup, I wondered if there was a tax-advantaged way to do it – I discovered Peter Thiel made his investment in PayPal in his Roth IRA, but it is not clear how one could do that legally (or how he did, for that matter) and they looked at that for me. When our daughter had questions about selecting benefits at her job or on whether she could afford to move to San Francisco, they worked with her.
On fees that are fixed or vary with Assets Under Management (AUM). I think we pay a fixed annual amount for these services. It is not unrelated to AUM, but it doesn’t vary even though the assets have risen and fallen over time.
Asked this on another thread, but also appropriate here. Thoughts on the Vanguard Advisory services (.3% AUM fee)? That seems a reasonable compromise for someone who does not want to do investing themselves, but considers the typical AUM fees to be more than necessary for services typically rendered.
It’s time to leave our current FA, and considering two options going forward. DH is leaning toward Vanguard. I’m leaning toward an advisor we interviewed that charges hourly (They’re HARD to find!).
We use the FIREcalc website to play with various planning scenarios, as our financial lives are no longer very complicated (Semi-Retired), and we can set the multiple parameters to see what happens.
I’d LOVE to find the type of advice Shawbridge has found, but haven’t yet. At this point, we prefer to simplify, using index funds we can “set and forget”, but would like some assistance choosing which funds for which accounts (primarily differences due to tax implications). Occasionally, we also have a specific questions such as strageties to help children in current awful home-purchase market in high COL area. Maybe that’s too specific for a FP?
A good FP should easily be able to help with that. Ours isn’t dumb they have family events. By meeting the kids, they know they have the next generation as clients. They have helped us plan for lots of things not just the basics like college education, but stopped us from creating a really large USTA (trust fund that automatically would have converted to our kids at age 18). They’ve made suggestions about best ways to borrow and even helped us during the sale of several companies ( what to do with lump sum, specialized stocks and many other details).
It’s really a math game. It depends on how big your portfolio is and how much time you think you’ll need to spend on it. An AUM fee of 0.3% on a $2M portfolio will cost you $6000 every year. The advisor I used charged $1725 for the initial complete assessment and then charges $350 an hour after that. We haven’t needed him since the initial consult two years ago, but we will once we get close to medicare age and when we start doing Roth conversions. Given what we got from him, the AUM model doesn’t make sense.
How does one go about finding these personal financial advisors? H is very reluctant to pay an AUM fee - for the most part, we’ve been doing this ourselves. We did get some advice from Fidelity at one point (some interactions are free depending on the size of your portfolio), but haven’t gone back since.
We do it ourselves too but I have the names of a couple of people from family and friends, and met with an FA at our bank who I would trust if something happened to H.
Yes, I think I joined the forum when my oldest was a hs junior. I became pregnant the next year, and I had baby #8 while my oldest was home for Thanksgiving break his freshman year of college.
I can’t remember the mortgage rate exactly, but I think 3.5%.
Yes, do think about tax factors in retirement planning. My husband has maintained a comple spreadsheet for decades. About 10 years before retirement, I pointed out that the 401k (all pretax) would get taxed at withdrawal. So he adjusted to account for approximations.
For example, $1000 in savings account counts as $1000 after-tax in retirement… but $1000 in 401k counts for only about $700.
Wow. That is accounting for being in a 30% effective tax rate bracket. As I understand this, 401(k) withdrawals are not subject to FICA, so for an average Joe that rate would be lower.
It was just an less-than-100% approximation, including state tax. But really when we are guessing about tax rates decades down the road we tend to guess safe/high.
<<To be blunt- poor decisions regarding social security made at age 62 or 65 have long-range consequences; whether to go with Part B or another type of gap insurance isn’t important for a healthy elderly person (all things being equal) but can get quite expensive for someone in poor health; understand the look-back periods; figure out now what will happen to the surviving spouse (someone’s got to die first) financially. Figure out what happens if someone needs long term care. Etc.>>
Look-back periods: Where do I go for more info on this stuff? There is likely to be a substantial estate for our kids (not that it’s doing us much good right now) – I’d hate for it all to be siphoned away because of our poor planning.
Also, my husband is turning 65 next year - I saw someone recommended a Medicare for Dummies book. I guess that’s my next research project once college apps are done this year.
One of the best resources for this is Open Social Security. It will calculate the approach to gain the highest net present value. It does assume average life span. It also will always suggest the highest earner wait until 70. If the higher earner has an untimely early death, their spouse will assume the higher benefit as the survivor. It also presumes you have the means to delay.
As for medicare, there are some interesting decisions. If you can keep your MAGI below $182K if filing jointly at ages 63 and 64, your medicare premium won’t have IRMAA.
Lastly, as one who sees patients with all variations, I’m a huge fan of regular Medicare and a supplement, as long as the physicians in your region largely take it. They pay, without screwing around with preauths and such like the commercial carriers do.
Getting off-topic a bit, but is the IRMAA thing a one-time determination? I understand there is a look-back period of two years, but is it one of those it just is what it is and stays that way without ever looking at it again (barring Medicaid eligibility down the road)? And it’s if your income is over that limit in just one of those two years or is it an average?
I think this topic is also now being addressed on the retirement thread.
The ACA considers income levels each year, right? So the IRMAA determination is different from that?
I suppose it is tangentially related to the topic as one does build wealth the more one is able to save - even in the 65 and up years.
I should probably wait for someone more experienced to respond, but my understanding is that IRMAA is recalculated each year. Some people appeal an IRMAA increase (if that is even the correct term) if the income is due to a one-time event (severance perhaps?).
To the extent that one can control income during Medicare eligibility years, the use of Roth conversions in early retirement and pre-IRMAA look back period can help smooth out future years’ earnings once RMDs kick in.
Our experience is that every year, your past 2 years of taxes are examined to determine your correct premiums for Medicare. It’s definitely not a calculation that remains the same regardless of your income over time.
That said, have read it can be appealed (though we just pay what we are informed we owe).
That’s the way it works as I understand it. I only mentioned it because the last years working can sometimes be the highest income years, especially if a business is sold. There are ways to reduce MAGI if one knows it’s important.
I’d LOVE to find the type of advice Shawbridge has found, but haven’t yet. At this point, we prefer to simplify, using index funds we can “set and forget”, but would like some assistance choosing which funds for which accounts (primarily differences due to tax implications). Occasionally, we also have a specific questions such as strageties to help children in current awful home-purchase market in high COL area. Maybe that’s too specific for a FP?
@kjofkw, some FAs really just do money management. Others are much broader. The other FA that I use has estate planning services and will do a financial plan of sorts, but not nearly as holistic. The more holistic one definitely wants to help with college planning and with the kids as they mature – good business strategy as most of their clients will be leaving money to their kids and building a trusting relationship with the kids is a good way to retain much of the business. Our FA would definitely address the problem of “When and how to buy housing today?” with our kids if they asked.
How do you find them? Ask your friends. I found the more holistic one on the internet as she was being interviewed on the issue of college financing saying intelligent things.
As I understand this, 401(k) withdrawals are not subject to FICA, so for an average Joe that rate would be lower.