Met with a CFP

[ua_guy]

It's time for DH and I to address some complex financial situations, estate planning, and also putting pins on a map plotting retirement. We were referred to a CFP (fiduciary) by a tax firm we've used to prepare our returns for the last couple of years. We completed a "fit" call with the planner this morning.

I walked away unimpressed - not by the planner, he was great, but by the overall offering. I felt like their client base is mostly people who haven't done much planning at all, or don't know where to start. I also silently scoffed at the 0.95% overall wealth management fee. The firm manages investments as part of planning and their percentage is all inclusive. Managing retirement assets isn't rocket science, and I am able to project how much a .95% fee will stunt growth.

My thought is, use the service to get the referrals to prepare all the legal documents and advise on the 'what' - things like if/when we should convert to roth, how to reduce our tax liability and deal with complex compensation -- and then turn it off.

I think the fee schedule is about normal, but I'm curious what arrangements other people might seek for planning purposes. Do you have someone who does advisory for time/expense? Have you used a planner, and if so, what did you get out of it?

[kork13]

You can find a CFP who operates solely on a fee basis .... For example, $100/hr for consultation or $2000 for building a complete investment plan or whatever else. I've never used one, but if I ever do, it'd be with a fee-based advisor vs. AUM. Although the upfront cost is more significant, over time it's gonna be far less costly, especially for someone who is otherwise fully capable of managing & executing a plan once it's established & in place.

There's even an organization build around that type of CFP --the National Association of Personal Financial Advisors (NAPFA). Their website even has a quick search tool for finding fee-based based advisors.

[ua_guy]

You can find a CFP who operates solely on a fee basis .... For example, $100/hr for consultation or $2000 for building a complete investment plan or whatever else. I've never used one, but if I ever do, it'd be with a fee-based advisor vs. AUM. Although the upfront cost is more significant, over time it's gonna be far less costly, especially for someone who is otherwise fully capable of managing & executing a plan once it's established & in place.

There's even an organization build around that type of CFP --the National Association of Personal Financial Advisors (NAPFA). Their website even has a quick search tool for finding fee-based based advisors.

Thank you for that resource, Kork, I wasn't aware of it. The search goes on!

[disneysteve]

You need a fee-only financial planner. That's someone who you can pay hourly to just do whatever it is you'd like them to do while you still maintain full control and management of your money. Stay away from the AUM planners. Maybe you just want an initial review and opinions and then a check-in visit once or twice a year.

[jenn_jenn]

As someone with a CFP and a similar AUM fee structure, I agree with your assessment and third the recommendation for a fee-only advisor!

We only use it because my husband’s job (Wall Street trader) has so many restrictions and administrative requirements on any and all of our investments which is negated when they invest on our behalf.

CFPs/FAs don’t have any magic wand that gets better returns and I’ve been less than impressed with any strategic planning to be honest. Definitely not worth 1% annually.

[myrdale]

I covered this in one of my previous post, and it has been brought up in a couple of others threads as well. I think your experience echoes the overall discussion from both of those threads.

Ultimately most of the people HERE are at least financially educated better than average.

People in general need to understand:

1) Retirement IS coming. I know people in their 40's who don't have anything saved at all.
2) Maximizing 401(k) to at least the match.
3) Contributing as much as possible towards a Roth IRA.
4) General tax knowledge (if you're getting a big refund each year, you're doing it wrong).

Only about three years ago did I realize we had a Roth 401(k) option in addition to the traditional 401(k) which I had been contributing to for years.

I am in the second month of having an HSA (and had my first doctor visit this morning). I'm learning about it.

Hopefully I stay gainfully employed for another couple of decades, but when I go somewhere else the 401(k) and Roth 401(k) will need to be rolled to my IRA(s).

There is room for arguments about which investments are going to be the "best" in each account. I am mostly split between VTSAX and the retirement date funds. Could I have a better return in other funds? Probably. But asking someone else to pick for me, I can't believe their crystal ball is that much better than my own.

[ua_guy]

We're lining up additional conversations this week with a couple of hourly/fee based advisors. Contrary to above, the goal for us is to NOT need to be employed for the next couple of decades. We are really hoping "work optional" can start in a "soon" timeframe.

[Fishindude77]

3) Contributing as much as possible towards a Roth IRA.
Only about three years ago did I realize we had a Roth 401(k) option in addition to the traditional 401(k) which I had been contributing to for years.

Roth IRA was only available in the tail end of my working career so our entire 401k was pre-tax traditional and rolled over into an IRA the same.
The Roth IRA's get pushed hard by everyone, but I see no compelling reason I should pull money I don't need at present, take a tax hit, then reinvest in a Roth?

We've planned for a pretty decent retirement income and expect to be paying taxes pretty much till death regardless. Where would converting to Roth benefit me significantly?
Seems like I'd be taking out $1.00 then reinvesting $0.75 just to miss some taxes down the road?

[ua_guy]

That's one of the questions we plan to discuss and want to see some good data around - more than just anecdotal bits on a forum. Does it make sense to convert to Roth, if so, when/why? I've long held the assumption that letting my retirement grow tax-deferred during high income tax years may be more advantageous. In retirement, we plan to withdraw and only pay taxes on what we need, putting us in a lower tax bracket.

Roth IRA's have income thresholds, yes?

[disneysteve]

I see no compelling reason I should pull money I don't need at present, take a tax hit, then reinvest in a Roth?

We've planned for a pretty decent retirement income and expect to be paying taxes pretty much till death regardless. Where would converting to Roth benefit me significantly?
Seems like I'd be taking out $1.00 then reinvesting $0.75 just to miss some taxes down the road?

I'm no expert on this but I believe you need to model out your RMDs. Depending on your situation, keeping too much in traditional pre-tax accounts can create a huge tax burden down the line when RMDs start. People save tens of thousands of dollars by gradually converting some of that money to Roths such that they only convert enough each year to stay in a lower bracket. Keeping the traditional accounts and getting hit with huge RMDs later would push them into a much higher bracket and result in a much larger tax bill.

[disneysteve]

I've long held the assumption that letting my retirement grow tax-deferred during high income tax years may be more advantageous. In retirement, we plan to withdraw and only pay taxes on what we need, putting us in a lower tax bracket.

That only works until RMDs kick in. Then you no longer have a choice how much to withdraw each year. You have to take out at least the required minimum whether you need it or not. If your account balance is significant, that can easily push you into a higher bracket.

[ua_guy]

That only works until RMDs kick in. Then you no longer have a choice how much to withdraw each year. You have to take out at least the required minimum whether you need it or not. If your account balance is significant, that can easily push you into a higher bracket.

Yep. And that's where a Roth conversion could make sense, but at what point, how much, etc. Or how else could we mitigate that via working in some limited capacity, charitable contributions, etc.

[Fishindude77]

RMD's assume = Required Minimum Distributions
I started using our 401k / IRA savings, taking monthly draws at 59.5 (six years ago). My thinking all along has been this money was saved for retirement, so I'm going to use it for such and hope to burn through it all (or most of it) before death while preserving other sources.

[disneysteve]

RMD's assume = Required Minimum Distributions
I started using our 401k / IRA savings, taking monthly draws at 59.5 (six years ago). My thinking all along has been this money was saved for retirement, so I'm going to use it for such and hope to burn through it all (or most of it) before death while preserving other sources.

That all makes sense, but isn't the case for many retirees. Over on the ER forum, there are quite a few members for whom a pension and SS cover 100% of their expenses and then some. They don't need to draw a penny from their retirement accounts, traditional or Roth, so the prospect of a big tax bill from large RMDs is quite real. Some of them figure out that they can reduce the overall amount paid in taxes over time by slowly converting the traditional accounts to Roth accounts.

We haven't run those numbers yet. Since we're currently on ACA insurance, I don't want to do conversions as it would shoot up our MAGI which is used to calculate our premium. Once we get on Medicare at 65 and that's no longer a concern we will revisit that. Or possibly sooner since the new bill probably eliminates the subsidy for us anyway.

[myrdale]

That's one of the questions we plan to discuss and want to see some good data around - more than just anecdotal bits on a forum. Does it make sense to convert to Roth, if so, when/why? I've long held the assumption that letting my retirement grow tax-deferred during high income tax years may be more advantageous. In retirement, we plan to withdraw and only pay taxes on what we need, putting us in a lower tax bracket.

Roth IRA's have income thresholds, yes?

Easy question first. Yes there is a limit. You must make $150k or less per year (that number increases every year) if single, its higher if married. That said there are workarounds, back door Roths, which I wouldn't do any good trying to explain.

The harder question, should you convert? Probably, almost certainly if you're allowed and can afford it. More so Yes the younger you are, more so No the older/closer to retirement you are probably.

The best explanation I have heard of the reason why parallels the reason why you should contribute to a Roth instead of traditional. NOTE (Rough dirty numbers) Investing $1000 per month, from 30 to 60 you're going to put $360,000 in either account. Assuming 10% growth, you'll have $2.2M at the end. Either way you put in $360,000 and either way you have $1,840,000 in growth. In the traditional you're going to pay taxes on that growth, in the Roth you're not.

It would benefit me GREATLY if I could do a roll over of the ~$100k in the traditional, BUT I'd have to cut a $30k check for taxes. My employer and the reps for our 401(k) have said I can not do a conversion, so for now I am just letting it ride while putting as much towards the Roth as I can each month.