Financial Planner/Fiduciary and Value--FOMO

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cresive
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Financial Planner/Fiduciary and Value--FOMO

Post by cresive » Sun Mar 17, 2019 9:57 am

Hello All,

I have searched this forum for previous posts on this topic. I don't use the search function well, so I apologize if this has been covered hundreds of times before. I couldn't find anything so here I go: I have been struggling with whether or not to seek personal financial advice from a fiduciary. I have been managing my financial affairs for over seven years (I didn't pay attention before that). I am about 10 years away from retirement and have been considering seeking the council of a professional financial planner. I have called a couple in my new area and they have been, to say the least, unhelpful. One wouldn’t even consider me unless I had over $1M in manageable assets. Of course, when she found out I did, I couldn’t get her off the phone.

With the bad taste I have in my mouth from my experience, I am wondering if I actually need professional advice, or am I suffering from a semi-rational fear that I am not 100% optimized in my strategy. My intention was to meet with a fee-only fiduciary, who could go over my accounts, game plan, etc. and give me his impression of my overall strategy, be it growth potential, tax optimization, or any other areas I haven’t thought about.

I am writing to ask about other’s experiences with financial planners. I don’t want to have my funds managed by them as I actually enjoy doing that. I was hoping for someone to review my specific situation, and offer any optimization plans a professional may have. My thought was to meet with this person on a yearly basis to review my progress or any changes. I don’t mind paying a fee for service, but one of the two above wanted over $20,000 which I believe is a bit much. I was thinking about $3000-$6000 which I still consider a rip off.

Here are my particulars:

Age: 57 FRA: 67
Single, but living with a non-bogle head (only my funds are presented here)
Job: Just started with the US Gov., Salary $135,000 which should go up, but no COLA’s in estimates for numbers below.
Other Income: Rental property and Royalties mentioned below

Savings:

Taxable accounts: about $230,000 (includes savings, online bank savings, T-bills and I Bonds) Does not include checking account and a small savings account which I use as flow-through accounts for daily expenses.
Trad. IRA: $800,000 (no new contributions)
Roth IRA: About $46,000 (contribute about $312/month: $250 in cash, and variable in credit card points that contribute to my Roth).
TSP: Make max contribution($19,000/year), current balance about $10,000
Roth TSP: make about $2600/year contribution. This may go up once I get settled into my new salary, etc.

Also have pension which will pay about $15,000/year after 10 years of service with the US Gov
Rental Property that earns about $3000/year after all taxes, mortgages and fees.

Projections after 10 years: (Conservative estimates, or estimated 6% return on investments)
SSA Benefits: $32,000/year (at FRA, from SSA.Gov page) Again, should be higher with continued work
Pension: $15,000/year (low estimate if I stay for 10 years)
Royalties: $12,000/year (long story, a low, but fair estimate)

Savings:
IRA: balance $1,432,789.00
Roth: Balance $230,000
TSP: Balance $305,000
Taxable Savings:-- I may use this money to buy a house. If so, will sell said house and move into rental property in retirement. Estimating $256,000 using todays interest rates for growth (2.2%). At retirement, my rental property will be paid off. My money will be used to upgrade and renovate rental property so I can enjoy it. Remaining balance will be used as buffer for sequence of returns risk.

Estimated Income:

Stable Income (From Above) $57,000
Lifestyle Income (From Above) <$72,000

I plan to use only traditional funds (IRA, TSP) for lifestyle Income. I used the 4% rule to estimate this income. Optimal game plan is to only have condo fees ($450/month), utilities ($75/month) and property taxes ($3500/year), transportation and food in retirement (values are current expenses). I hope to have all my essential spending (housing, transportation, clothing, food, daily activities) covered with stable income. Lifestyle income will pay for travel, dining out, nicer clothes, and other lifestyle upgrades. The income will vary with market fluctuations. Since I will be using these funds, I haven’t calculated the RMD’s on them for this post’s purpose.

Travel/Emergency Funds: I plan to use my Roth funds for any unexpected expenses (new HVAC, Car Repairs, etc.). My game plan is to max out my retirement income, and to tap my Roth account to cover anything above that so that these expenses do not alter my tax bracket or Medicare calculations. I have recently read where it is more efficient to take the percentage income from each account (traditional and Roth), and may work the numbers on that. However, I suspect my RMD’s will make me want to save these funds for later use.

Does anyone have tax-optimization tips? See any glaring holes or issues? See a need to consult a professional?

Thanks,
Ben

cherijoh
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by cherijoh » Sun Mar 17, 2019 10:54 am

cresive wrote:
Sun Mar 17, 2019 9:57 am
Hello All,

I have searched this forum for previous posts on this topic. I don't use the search function well, so I apologize if this has been covered hundreds of times before. I couldn't find anything so here I go: I have been struggling with whether or not to seek personal financial advice from a fiduciary. I have been managing my financial affairs for over seven years (I didn't pay attention before that). I am about 10 years away from retirement and have been considering seeking the council of a professional financial planner. I have called a couple in my new area and they have been, to say the least, unhelpful. One wouldn’t even consider me unless I had over $1M in manageable assets. Of course, when she found out I did, I couldn’t get her off the phone.

With the bad taste I have in my mouth from my experience, I am wondering if I actually need professional advice, or am I suffering from a semi-rational fear that I am not 100% optimized in my strategy. My intention was to meet with a fee-only fiduciary, who could go over my accounts, game plan, etc. and give me his impression of my overall strategy, be it growth potential, tax optimization, or any other areas I haven’t thought about.

I am writing to ask about other’s experiences with financial planners. I don’t want to have my funds managed by them as I actually enjoy doing that. I was hoping for someone to review my specific situation, and offer any optimization plans a professional may have. My thought was to meet with this person on a yearly basis to review my progress or any changes. I don’t mind paying a fee for service, but one of the two above wanted over $20,000 which I believe is a bit much. I was thinking about $3000-$6000 which I still consider a rip off.
Years ago I consulted a fee-only financial planner for a check up. They plugged my data into a Monte Carlo simulation, generated a fancy report with lots of colorful graphs and gave me an A+ rating for financial health. As far as I recall, the only actionable ideas I got were that I didn't need to save as much as I was in taxable (but to continue maxing workplace retirement plans) and that I could consolidate my mutual funds at a low-cost brokerage like Charles Schwab for convenience. She also recommended I stop automatically reinvesting dividends and instituted a year-end rebalance. Overall, I didn't think I got very much value for my money so I never went back.

I do think a financial planner could add value in some circumstances - e.g., if someone I knew received a high 6- or, etc 7-figure windfall (e.g., lottery winnings, settlement, sale of business, large inheritance, etc.) I would certainly recommend consulting a FP. I think if you have a specific question or situation that is beyond your experience they would be worth the consultation. But I think most FP are looking for an ongoing relationship where they receive a fee for assets under management (AUM) - I guess you can't blame them for wanting a continuing source of income. But I would definitely steer clear of such arrangements.

cresive wrote:
Sun Mar 17, 2019 9:57 am
Age: 57 FRA: 67
Single, but living with a non-bogle head (only my funds are presented here)
Job: Just started with the US Gov., Salary $135,000 which should go up, but no COLA’s in estimates for numbers below.
Other Income: Rental property and Royalties mentioned below

Savings:

Taxable accounts: about $230,000 (includes savings, online bank savings, T-bills and I Bonds) Does not include checking account and a small savings account which I use as flow-through accounts for daily expenses. <--- This seems high to me if you aren't retiring for another 10 years
Trad. IRA: $800,000 (no new contributions) <-- have you considered rolling this into TSP? TSP has some great options and extremely low expenses
Roth IRA: About $46,000 (contribute about $312/month: $250 in cash, and variable in credit card points that contribute to my Roth).
TSP: Make max contribution($19,000/year), current balance about $10,000 <--- TSP and Roth TSP have combined limits - see this factsheet; at your age you are eligible for an additional $6K catch-up contribution
Roth TSP: make about $2600/year contribution. This may go up once I get settled into my new salary, etc. <--- see above
See highlighted comments above.
cresive wrote:
Sun Mar 17, 2019 9:57 am
I plan to use only traditional funds (IRA, TSP) for lifestyle Income. I used the 4% rule to estimate this income. Optimal game plan is to only have condo fees ($450/month), utilities ($75/month) and property taxes ($3500/year), transportation and food in retirement (values are current expenses). I hope to have all my essential spending (housing, transportation, clothing, food, daily activities) covered with stable income. Lifestyle income will pay for travel, dining out, nicer clothes, and other lifestyle upgrades. The income will vary with market fluctuations. Since I will be using these funds, I haven’t calculated the RMD’s on them for this post’s purpose.

Travel/Emergency Funds: I plan to use my Roth funds for any unexpected expenses (new HVAC, Car Repairs, etc.). My game plan is to max out my retirement income, and to tap my Roth account to cover anything above that so that these expenses do not alter my tax bracket or Medicare calculations. I have recently read where it is more efficient to take the percentage income from each account (traditional and Roth), and may work the numbers on that. However, I suspect my RMD’s will make me want to save these funds for later use.

Does anyone have tax-optimization tips? See any glaring holes or issues? See a need to consult a professional?
It seems like you have thought this out logically and have a pretty good grasp of the issues. I think you would be better off using one (or more) of the retirement planning tools found in the Boglehead Wiki than spending money on a financial planner. At least then you are in control of the assumptions made in the analysis.

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Misenplace
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by Misenplace » Sun Mar 17, 2019 11:03 am

One additional point to OP-you appear to be calculating future portfolio amounts after assuming 6% return over 10 years. Are you also calculating future expenses using assumptions about inflation?

+1 to cherjoh’s points about maximizing contributions to TSP/TSP Roth (you have the over 50 y.o. catch up available) and the rollover of the IRA into the TSP.

You are also somewhere around the max income limit for regular Roth and need to watch that.

edit- mistakenly typed Roth when I meant TSP. Now corrected.
Wish I had a TSP. :twisted:
Last edited by Misenplace on Mon Mar 18, 2019 8:18 pm, edited 1 time in total.

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nisiprius
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by nisiprius » Sun Mar 17, 2019 12:21 pm

When I once skimmed through a sample CFP exam, I got an impression of the a "typical client who uses a CFP." It was the final question, a long essay question about a hypothetical client.

She was earning in the mid-six figures, in her forties, running her own business with three or four employees, most of her investments were taxable, had three children she wanted to put through college, needed half-a-dozen different kinds of insurance for business as well as personal reasons, was divorced and receiving alimony (with legal and tax implications, particularly for college savings and tuition), and had a several million dollar portfolio.

Much less than half of the exam had anything to do with investing issues. This wasn't factor tilts and MPT stuff.

I have no problem with saying that hypothetical person absolutely could use a financial planner and would be justified in spending over $10,000 a year on one. And, at the same time, saying that I, who have never filled out a Schedule C in my life (disclosure: a C-EZ, yes), don't need one and would be wasting money paying one.

I think one has to be careful to distinguish between aspirational goals ("to be wealthy enough to have a financial situation where a financial planner could help") from needs ("actually needing a financial planner.") Since financial planners want business, they are going to set the cutoff low--we don't want clients with less than $1 million means "if you have less than a million it is almost impossible that you could need our services.")
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

livesoft
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by livesoft » Sun Mar 17, 2019 12:25 pm

I got confused by an IRA of $800,000 and an apparently different IRA of $1,432,789.00.

Also the max contribution to the TSP is not $19,000 for someone age 50 and older. It is $25,000. So you asked overall strategy and it seems you are unaware of the $25,000 limit.
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InMyDreams
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by InMyDreams » Sun Mar 17, 2019 8:32 pm

cresive wrote:
Sun Mar 17, 2019 9:57 am

I am writing to ask about other’s experiences with financial planners.
I consulted an advice-only CFP/NAPFA advisor. While she primarily looks at monies and asset allocation, she followed up on other financial concerns: insurance, estate, plans for future expenses, etc.

She charges a flat, hourly fee. Her usual MO - an initial plan, and annual follow ups. Follow ups take about half the time as the initial plan, unless you make major changes in life plans.

She is in a different state, and provides phone/online consultation for me.

You may be interested in this thread, which has references to another thread, as well as a website that provides referrals to other advice-only financial advisors.
viewtopic.php?f=1&t=252537

Tdubs
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by Tdubs » Sun Mar 17, 2019 8:40 pm

You seem to be doing just fine without one.

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cresive
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by cresive » Mon Mar 18, 2019 6:41 am

Misenplace wrote:
Sun Mar 17, 2019 11:03 am
One additional point to OP-you appear to be calculating future portfolio amounts after assuming 6% return over 10 years. Are you also calculating future expenses using assumptions about inflation?

No, I am using the 6% returns as gross (i.e. not net of inflation). I am not sophisticated enough to factor inflation into my equations. I am aware that it eats into the net gains, but I am just looking at returns.

+1 to cherjoh’s points about maximizing contributions to TSP/TSP Roth (you have the over 50 y.o. catch up available) and the rollover of the IRA into the Roth.

Thank you for these caveats. I do have my contributions split into regular and catch up. I read about how you lose the Gov match if you exceed your contributions into standard TSP. For simplicity, I break my contributions into maxing my traditional into the standard bucket and putting my roth into the catch up funds. If the cost of living raise ever comes through, I will adjust these accordingly.



You are also somewhere around the max income limit for regular Roth and need to watch that.


Again, thank you for the caveat. I am watching my limits as well. So far, I am okay. I also don't push the limits on my Roth contributions. Should I butt up against the limits, I plan to move all my tIRA funds into my TSP account (mentioned in an earlier post). and do a back door Roth. I can't wait until I make enough money to have to deal with that issue.

Thank you for your considered response. This is just what I was hoping for.

Ben
Last edited by cresive on Mon Mar 18, 2019 7:04 am, edited 2 times in total.

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cresive
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by cresive » Mon Mar 18, 2019 6:51 am

cherijoh wrote:
Sun Mar 17, 2019 10:54 am
cresive wrote:
Sun Mar 17, 2019 9:57 am
See highlighted comments above.

Thank you for your input. Just to clarify, the cash in T-bills is from a recent house sale. I am keeping the cash in liquid assets in case I choose to buy another house before I retire. Keeping the cash in T-bills is my compromise as I want to have access to it should I find a nice house.

As for the tIRA. I had some bad advice when I left my previous job. I had a pretty good 401A account plus a rather nice 403B. I moved my 401A money to the tIRA and left the 403B money in place to tap in case of a terrible tragedy. The 403B makes up about $285K of my above money. The tIRA is with Fidelity and in low costs accounts. Initially, I was happy with this move, but as I push up against the limits for contributing to a Roth IRA, I am considering the option, you mentioned, to move the money to my TSP which has almost the same funds as I am portioned into with Fidelity. This will enable me to make after tax contributions to my tIRA and convert.




It seems like you have thought this out logically and have a pretty good grasp of the issues. I think you would be better off using one (or more) of the retirement planning tools found in the Boglehead Wiki than spending money on a financial planner. At least then you are in control of the assumptions made in the analysis.


Thank you!! I plan to check out the tools page!! Thank you also for the thoughtful comments on my plan. Fortunately, I am already doing some of your suggestions. I am working on the others!!

Ben
Last edited by cresive on Mon Mar 18, 2019 7:05 am, edited 1 time in total.

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cresive
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by cresive » Mon Mar 18, 2019 6:58 am

livesoft wrote:
Sun Mar 17, 2019 12:25 pm
I got confused by an IRA of $800,000 and an apparently different IRA of $1,432,789.00.

I think you are looking at present day balance and future, estimated balance. I provided both to demonstrate my assumptions about how my investments are going to grow with my current asset allocation, which I didn't disclose. They are 60/40, equities (80% domestic plus REITS; 20% international)/bonds. I put forth both current and project numbers to get feedback as to whether my assumptions are reasonable, or unreasonable and I need professional advice.

[i]Also the max contribution to the TSP is not $19,000 for someone age 50 and older. It is $25,000. So you asked overall strategy and it seems you are unaware of the $25,000 limit.[/i]

I did not state this well. I am aware of the catch up limits. I put $19,000 into traditional TSP contributions. I am not maxing out my "catch up" contributions yet. However, I am putting in a few thousand into my catch up which is represented by my Roth contribution. I am keenly aware of both limits, as you lose the government match if you go over your basic, $19,000 limit.

Thank you for reading my post and pointing out these potential issues.

Last edited by cresive on Mon Mar 18, 2019 7:06 am, edited 1 time in total.

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cresive
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by cresive » Mon Mar 18, 2019 7:00 am

InMyDreams wrote:
Sun Mar 17, 2019 8:32 pm
cresive wrote:
Sun Mar 17, 2019 9:57 am

I am writing to ask about other’s experiences with financial planners.
I consulted an advice-only CFP/NAPFA advisor. While she primarily looks at monies and asset allocation, she followed up on other financial concerns: insurance, estate, plans for future expenses, etc.

She charges a flat, hourly fee. Her usual MO - an initial plan, and annual follow ups. Follow ups take about half the time as the initial plan, unless you make major changes in life plans.

She is in a different state, and provides phone/online consultation for me.

You may be interested in this thread, which has references to another thread, as well as a website that provides referrals to other advice-only financial advisors.
viewtopic.php?f=1&t=252537
Thank you for your response. This is exactly the scenario I was looking for. May I ask what your CFP's fee structure was? I will look at the other threads.

Thanks again,
Ben

InMyDreams
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Re: Financial Planner/Fiduciary and Value--FOMO

Post by InMyDreams » Mon Mar 18, 2019 9:12 pm

She asks for basic info initially, then one hour consultation about planning scope and needs - no charge. Contract signed, 1/2 estimated charge before planning started, half due once plan completed. Contract gives a small range, and if time spent exceeds that range, she will not charge that cost.

Recommended annual review which she states is usually about half the time previously spent.

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