I just set them on automatic monthly payment, what’s there to remember.
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There’s evident value in simplicity. There may be, however, greater value hidden in complexity.
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Annuitizing, as you well know, is a safety based approach. There’s absolutely nothing wrong with that. It’s simply a mind set. Annuitizing, assuming we’re taking something like a SPIA, guarantees an income stream, at the expense of flexibility. I would think that the safety mindset would also prefer the cash flow as opposed to making mortgage payments and making a marginal return on the money they could use to pay it off. As my accountant said, if it helps you sleep at night, pay it off.
At the end of the day, I think it’s a math game still, but you have to be cut from that cloth. Not all of us are.
There is also the mindset that, if you have already “won the game” – i.e. accumulated enough wealth to take care of your retirement and any other possible needs and wants even with unfavorable markets and macroeconomic conditions – there is no reason to take more than ordinary or lower levels of risk or do anything requiring a lot of financial maintenance.
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Completely! There is enough, but more has a strong pull. 
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One example of worldview- I am insanely risk averse, spouse less so. Most of this derives from our own family histories (of course)- immigrant vs. native born American, recent refugee experience on one side, the other in this country for four generations. Early dementia diagnosis on one side, the other living independently into their 90’s.
So our financial worldview encompasses both sides. We keep a larger cash balance than the experts would recommend (which has been a fantastic shield during market downturns… the money is in boring CD’s, money markets, etc. but those don’t fluctuate), we have designated one partner’s investment pool as the high risk/high reward pot, and the other as the “slow and steady wins the race”.
Both parties love their jobs and don’t intend to retire until health concerns force it.
We both understand that we could have had higher returns, a bigger overall pot if the risk averse partner had “just gotten over it”. We also understand that we weathered a job loss while we had two kids in college (no aid) precisely because the risk averse partner keeps high cash reserves “just in case” and in fact- that “just in case” actually happened. Having had to sell stock in a down market to pay tuition is not the worst thing in the world (there are loads of unemployed people without a working spouse, about to lose their homes to foreclosure, let alone pay tuition…) but our "one likes risk, the other knows something bad could happen at any time’ approach has helped us weather up markets, down markets, job loss, recessions (a bunch of them) housing market crashes, etc.
So I don’t think people need to be in synch on a financial plan; they just need to respect each other’s POV and come up with a way to help both parties (if there are two parties) sleep at night.
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I agree with that concept, related to more than just financial investments. We like to hike for example. Sometimes something “just doesn’t feel right” - we were in Glacier Nat’l Park and they really do have grizzly bears. We started off on a path, and one of us just said “we have been walking a mile, and haven’t seen anyone else. Maybe we shouldn’t be out here on our own” (We’ve heard it’s better to hike with 4 or more when grizzlies could be around). So we went back and did a different hike. Same scenario when we were out hiking and came across a BUNCH of mountain goats (they can be dangerous). They seemed too interested in us, and we just turned around.
Yes I agree and am fortunately in the have enough or already won the race crowd. So I’m less inclined to take unnecessary risk for an extra X when that X won’t dramatically change my life. I have a certain number of trips I want to take each yr and all that stuff. Of course there will be some unknowns but our current setup will pay for all of the knowns and a bunch of travel every yr.
Something I recommend for everyone is Wade Pfau’s Retirement Income Style Assessment (RISA). I’m right on the borderline of commitment vs. optionality. Commitment would recommend annuitizing. Optionality…bond ladder. The secondary approach though for each, is the other. It points me to those because I’m a safety first investor by their profile. Interesting tool.
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That’s a great tool. A big issue I find and basically what I focus my practice on, is connecting that type of information to a client’s actual assets. What I have found the vast majority of the time is that most people’s assets and goals / risk tolerance are misaligned. Bringing them into alignment is critical to achieving “success” in the desired manner. Lots of ways to get there but how does the client really want to proceed (like a road map - highway, country roads, mountain drive, bridges, etc.) Combining tools like @eyemgh mentioned with the understanding of what I call The Life Stages of Money helps bring one back in alignment.
I break it down into three basic categories, Accumulation (working yrs), preservation (retirement), legacy . Each has its subsets but this serves as a good macro. The transition period from accumulation to preservation is really important. That needs to take place about ten yrs prior to retirement in order to stage money for preservation. This is the area I find most misaligned as they got started early on in accumulation (more aggressive investments and properly so) without adjusting to their near future needs. They had time on their side. No longer the case when they need to be focused on distributions vs. accumulation. I know it sounds obvious but most do a poor job at adjusting through life’s timeline. Paired with this issue is the whole concept of planning. If any was done at all, most view it as an event (as in I have my financial plan). It’s not an event, but rather an ongoing process. Life happens and things change, yet I find the plan (or its instruments) never adjust.
To me, that’s the primary role of an advisor: to educate, help plan, update, etc.
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Bravo! I think that is the role of the financial advisor.
Some of us have put in the work and have the fortitude that we don’t need that. Even then, there are periods where I still call for help (Roth conversions, donor advised funds, etc.).
It’s the advisors that promote themselves as beating the market that I push back against. The evidence is not in their favor.
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Yes. My fund vs. your fund is an unwinnable game. Worse, from a business standpoint (as in owning a business), these FAs are completely commoditized as they have no influence over those outcomes and typically compete on price. That’s fine if you’re Walmart but not so good if you’re the local FA who hangs a shingle.
Profitable businesses are about value creation. In the FA world, the “product” needs to be the advisor. They need to find ways to create value. The more value created, the larger the fee (can be justified). If all I’m doing is collecting assets and sticking them with money managers (typical of many FAs), I haven’t really created value and have entered a race to the bottom (of fees). The value can come in many forms. I find client education is a big piece. Most don’t know what they don’t know.
For those that put in the time, understand the issues and solutions, and enjoy monitoring / navigating this world, not much need for an FA. For those that want assistance, don’t get so hung up on fees, provided they represent value creation. As an example, I get paid AUM fees, planning fees and commissions. Differs per client and what they need. My compensation in no way steers my advice / plan implementation. My clients could care less how I get paid because of the value created. Occasionally, when one wants me to simply be a stock picker, I send them to another firm because that’s the area of least value creation and establishes an unsustainable relationship. They’re going to eventually leave, so ahead and find a new home now.
I would suggest all to just know what they want in a relationship. Some may just want transactional support. Not my game so I don’t play in that world. Took a long time to realize that.
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Why AUM fees if you’re only providing advice? Why should that advice be a function of AUM?
Wasn’t looking to get into a compensation conversation on this forum. Suffice to say I provide comprehensive planning / money management. The services include planning, money management, implementation, insurance services, updating as necessary, ongoing counsel, (and of course connecting to competent CPAs, lawyers, business succession experts, etc.) The fees and commissions, in whatever form, serve as an ongoing retainer, if you will, for my overall and continued services. Some of my clients have grown into three generations which is a blast. Started with my peers, added their parents and their kids (when kids became of age).
Other than money management, all the other services listed aren’t paid on an AUM basis. AUM fees are, of course, the standard in the money management business, so I assume you also collect assets and allocate them to other money managers.
What anyone pays for anything is directly related to how badly they feel they need the “thing.”
I personally don’t like AUM based advice, but I’ve spent MANY hours honing my investment skills. When I need help, I need it for a very specific thing. I pay hourly for that advice.
For others, paying a little more to have someone always on the team to protect them from themselves is probably useful.
My suspicion is that the way I invest and keep my fees extremely low, that I will outperform a managed portfolio by a little. I say by a little, because they are almost certainly doing it like I am. The margin would be in the fees.
I’m guessing that the average self directing investor though won’t outperform an honest advisor.
OK financial planners/others who want to make “suggestions”…
Would you advise customers to convert from traditional to ROTH IF customer were going to be paying close to 34% in state and local taxes (assume you have “cash” to pay the tax)?
Just curious - people seem to have very strong opinions on this issue.
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Wouldn’t that depend on what the person’s expected income tax rates will be later if the money is kept in a traditional account and taxably withdrawn (or converted to Roth) later? Of course, income tax rates later would not be known for certain, due to such things as future legislation or moving to a place with different income tax rates later but not planned or foreseen now.
Yep, that’s how I understand it.
And who knows what’s going to happen with RMD ages OR with tax rates.
Some people are paying LOTS to convert now, and some people think it’s stupid to think about converting at all.
One very experienced accountant I asked wouldn’t give advice. I was a little surprised by that, but respected him more for it.
Mostly, this kind of choice about whether to convert traditional to Roth now would depend on whether you want the sure thing now (i.e. known income tax rate for the conversion) or take a chance on future income tax rates which may change (either favorably or unfavorably) due to your personal situation and future legislation.
This is not too different from the choice of whether to add new money to a traditional or Roth account, if one is not at the point where limitations of adding money to either kind of account restrict that choice.