Fee only financial advisor question.

C

Carol1862

Recycles dryer sheets
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Dec 9, 2016
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My husband and I are at the point that we have questions only a qualified person can answer. We cannot do this on our own. Questions such as

1. How to figure out if converting tIRA makes financial sense in our particular situation.

2. By waiting for SS until 70 for DH (his is significantly more than mine) will we put ourselves in the next tax bracket when considering RMDs? It could be close

Bottom line, we don’t want to leave money on the table...we want to be informed to make the best decision.

Took me a year to find a fee only NAPFA financial advisor. We’re meeting via Zoom to have a consult. He stated he is only a fee only advisor. Rates average $1500-$2200 for what we will probably need.

I called advisors within a 2 hour drive in different directions and not one was fee only. They all wanted to manage our money. We don’t want that. This advisor stated he still will give advise on our investment strategy but doesn’t manage it.

I know most of you can figure these financial situations out yourselves. Many of us are smart enough to know we can’t.

Is there anything I should be looking out for? Any questions I should be asking of him? First consult is free. Only pay I’d we hire him. Unfortunately no one we know has used a FA so can’t get their feedback and/or recommendations. Many use a very well liked FA that manages their money for 1%.

Thank you!
 
Another source might be a CPA with a specialty in personal financial planning... aka a PFS (Personal Financial Specialist)... see this link to see if there are any near you.

https://account.aicpa.org/eWeb/dynamicpage.aspx?webcode=referralwebsearch

That said, your questions are pretty common.

On the first one, typically there is a period of time from when you first retire until when you start SS that you are in a low tax bracket and it is beneficial to do Roth conversons to the top of the tax bracket that you expect to be in once SS starts.

On the second question, it is pretty easy to estimate the tax bracket that you will be in when SS starts and the tax bracke that you will be in with RMDs added in.

Do you do you own taxes? If not, your tax preparer might be able to give you some input on your questions unless there are some complicating factors we are not aware of.
 
Thank you so much. When I asked our accountant he gave us the name of a financial advisor. He was great to speak to but said he doesn’t do fee only.

My question #2 has me questioning if we should start SS for my husband next year at age 68. I have a feeling that the added 8% a year will push us over the edge. I’ve used the last few years interest/cap gains and its pretty close. I don’t want to wait only to “punished”.

I will check out your list. Again, thank you
 
Carol1862 said:
I called advisors within a 2 hour drive in different directions and not one was fee only. They all wanted to manage our money.
Click to expand...

Carol, fee-only advisors usually do manage money. "Fee-only' just means that they're paid by their clients, rather than by commissions from vendors or other third parties.

The terminology in this industry is confusing. It sounds like what you were looking for was an advisor who bills hourly, rather than on assets under management.
 
Onward said:
The terminology in this industry is confusing. It sounds like what you were looking for was an advisor who bills hourly, rather than on assets under management.
Click to expand...

Boy, isn't that the truth!
"Fee only" has at least a dozen different interpretations, and many of them are pretty close to "X% of assets". It's very important to check that out carefully so you know what you're buying.
 
On question #2, when to start SS, this is a great place to start.... https://opensocialsecurity.com/

Check the Advanced Options box at the top of the page. The tool will return an "optimal" solution based on the information that you provide and the mortality tables. You can also looks at alternative claiming strategies towards the bottom after you get the optimal strategy.

We'll probably do DW at FRA (66/2) and me at 70 since I was the higher earner.
 
Carol1862 said:
Thank you so much. When I asked our accountant he gave us the name of a financial advisor. He was great to speak to but said he doesn’t do fee only.

My question #2 has me questioning if we should start SS for my husband next year at age 68. I have a feeling that the added 8% a year will push us over the edge. I’ve used the last few years interest/cap gains and its pretty close. I don’t want to wait only to “punished”.

..
Click to expand...

Since you are in the 22% tax bracket, getting pushed into the next higher one is only 2% more.

So not much of an extra amount on any money over the edge (does not add 2% to your total bill)
 
Onward said:
The terminology in this industry is confusing.
Click to expand...

And the funny (sad?) thing is that, in financial industry parlance, the opposite of "fee-only" is "fee-based."

Got it? :cool:
 
Sunset said:
Since you are in the 22% tax bracket, getting pushed into the next higher one is only 2% more.

So not much of an extra amount on any money over the edge (does not add 2% to your total bill)
Click to expand...

Carol1862 said:
Wow, good catch. But COVID 19 came along and there went the job. I’m in the 12% now this year.
Click to expand...
That's important to know, along with how much head room you have in the 12% Fed tax bracket.

Ideally you'd want to pay the tax due on a conversion from your available cash. But don't want to drawdown available cash if it makes you stress...

I understand an earlier statement you made that explains why you want to pay someone to do the analyses. But how do you know they correctly model all of your factors?

So, last year you were in the 22%, and this year are projecting staying in the 12%. And what would be the impact this year of Roth conversion and/or a SS check? Ok, got it.

I'm really surprised that your tax accountant is not interested in this analysis. Maybe get another one.

Also, if possible, use some online calculators to get an idea of what inputs you'd use when estimating results. I don't have a link handy, but others will.
 
Another thing to keep in mind is you can only plan based with the current tax laws\rates, cause you never know what the knuckleheads in office will want to change.
 
Carol1862 said:
Bottom line, we don’t want to leave money on the table...we want to be informed to make the best decision.
Click to expand...

I am going to nit-pick the part about not wanting to leave any money on the table.

That's an impossible goal unless you both know when you are going to die.

Rather than worry about leaving any money on the table, I suggest you make make the best decision you can, and let it play out from there. Spend you time enjoying your life and your loved ones.

This is the best cartoon I have ever seen on this sight or any retirement planning site.
 

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Onward said:
And the funny (sad?) thing is that, in financial industry parlance, the opposite of "fee-only" is "fee-based."

Got it? :cool:
Click to expand...

I had a flat fee "fee-only" planner that I hired when I FIRE'd to bounce ideas off of and do some planning. Overall, the process was worth the cost. But later on, the planner moved to subscription based fee only. So, I thanked the planner and said my finances aren't that complicated and don't need that much attention :popcorn:.
 
Chuck, I used the wrong terminology by saying “ leave money on the table”. What I was trying to say is that I don’t want to be misinformed and have it cost us. We have our free consult with the advisor this week. We’ll see what he says and then decide if we want to hire him. This stuff can truly make your head hurt!!

BTW, my husband agrees completely with you. Just go along and live our lives and not sweat if it cost us a little extra in taxes.
 
gamboolman said:
ms gamboolgal and I have used Rick Feri and we do recommend him for a consultation.
Click to expand...

Add me to the list of satisfied Rick Ferri clients. However, I will point out that he characterizes himself as an investment advisor, not a comprehensive financial planner so you would have to check with him to find out whether advice on converting to a Roth or not is part of what he does.

I have not used this guy, but he is a poster on Bogleheads with a compelling personal financial story. He offers a service to find people an "advice only" financial planner for a nominal fee:

https://adviceonlyfinancial.com/how-to-find-advice-only
 
Carol1862 said:
Chuck, I used the wrong terminology by saying “ leave money on the table”. What I was trying to say is that I don’t want to be misinformed and have it cost us. We have our free consult with the advisor this week. We’ll see what he says and then decide if we want to hire him. This stuff can truly make your head hurt!!

BTW, my husband agrees completely with you. Just go along and live our lives and not sweat if it cost us a little extra in taxes.
Click to expand...
Carol, your clarification is fine. I've come to a similar conclusion since there will be changes in all of the factors 2019-2029 (a 10-year projection). Even though I've tried to include reasonable estimates of items like SS payments, I won't know for sure until I start receiving. Given that I'll be ok if I go a bit over the 12% because I made an error in spreadsheet. Each year I'll need to review things again before making more conversions.

Good luck with your advisor meet. It will be interesting to find out if they give you answers in a way that you can do calculations next year, or will it require another review to be sure of things.
 
Carol, There have been many responses and most of what I would say has been said except:
1) I would suggest you and DH try to work through some of the analysis for your questions if only to be better informed when you get advice from an advisor. I was pretty sure on our plan when I met with a couple advisors. I was only asking to review and comment on my plan as we don't need an ongoing money management relationship.

2) Regarding your RMDs as was noted by another response if you were supposed to be in the 22% bracket and with SS and RMDs you find yourself in 24% marginal bracket (over $171,050 for 2020) you only pay 24% on the amount over the $171,050. Small change to your effective tax rate. Our effective rate went from 16.93% to 17.58% when we entered 24% bracket so small difference in the effective rate.

3) I would be very interested to ask an advisor what advice they can give on income tax matters. The advisors I spoke to were careful not to touch taxes except in general terms.

4) and I would ask your prospective advisor what the impact would be of doing Roth conversions on other fees you would need to pay, for example we are hit with Medicare IRMAA and limits on income to deduct losses on rental realestate. Others also speak of surpassing ACA limits. There are many many fees that are impacted by your income that would include any Roth conversions or RMDs along with SS at 70. The county where our home is located would give relief of property taxes but with the Roth conversions we don't qualify. Just some examples. Hopefully a good advisor would be able to list these fees or taxes and address how you would be impacted by conversions or by having the RMDs at 72.



Good hunting
 
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